US Dollar Forecast: DXY Under Pressure as Moody’s Cut Spurs Gold Rally, Yields Surge

Moody’s Downgrade Hits Dollar as Treasury Yields Spike and Safe-Haven Demand Surges

The U.S. dollar index (DXY) dropped on Monday following Moody’s downgrade of U.S. sovereign credit to Aa1 from Aaa, ending the country’s top-tier rating across all major agencies. The move, though widely anticipated, rattled investor confidence in U.S. fiscal stability and reignited concerns over debt sustainability. The downgrade triggered a broad market repricing, pressuring the dollar and driving yields on U.S. Treasuries to critical levels.

Treasury Yields Surge Despite Safe-Haven Demand—What Does It Signal?

Yields across the Treasury curve surged, with the 30-year rising 13 basis points to 5.03%, and the 10-year touching 4.55%. The jump came as investors dumped long-duration bonds, reflecting deeper skepticism about U.S. creditworthiness. Despite rising yields typically boosting the dollar, this time they underlined structural fiscal concerns. Analysts noted that long-end pressure suggests diminishing confidence in Treasuries as a reliable safe haven.

Dollar Index Slides, Yen and Euro Catch Bids

The DXY fell 0.8%, slipping to a ten-day low against the yen, which strengthened to 144.665—a move reflecting classic risk aversion. The euro rose 0.73% to $1.1247, gaining further on dollar softness. FX strategists noted renewed short positioning in the dollar, describing market sentiment as a “sell America” session. The downgrade revived debates about the U.S. dollar’s reserve status and fueled short-term selling pressure.

Gold Rebounds on Weaker Dollar and Fiscal Jitters

Gold prices climbed 0.9% to $3,231 an ounce, regaining ground after last week’s 2% drop. The rally came despite rising yields, as traders viewed the downgrade and political uncertainty as bullish for hard assets. A decisive break above the $3,238.38 resistance could trigger momentum toward $3,277.91 and potentially $3,310.48. Goldman Sachs maintained its year-end gold forecast at $3,700/oz, citing long-term fiscal concerns and global policy risk.

Fed Policy Outlook Clouded by Fiscal Risks and Market Volatility

Speeches from Fed officials, including Bostic and Williams, are now in focus as traders assess whether yield levels might substitute for further tightening. With inflation expectations still anchored, the Fed may pause, but growing debt-servicing burdens and rising risk premiums complicate the outlook.

Market Forecast: Bearish Dollar Bias to Persist

The dollar faces continued downside pressure as Moody’s downgrade adds credibility to fiscal alarm bells already ringing across bond and currency markets.

With Treasury yields elevated and global demand for safe assets shifting toward gold and the yen, traders should expect near-term DXY softness—especially if trade policy volatility persists and Fed signals remain neutral. Risk sentiment favors further gold upside and continued dollar repricing.

More Information in our Economic Calendar.