Dollar Plummets 3.7% as Treasury Yields Surpass 4.5%

The week ended on a tumultuous note as the dollar's performance faltered and the Treasury market experienced a significant selloff. The dollar, as measured by the DXY index, declined by 3.7% from Wednesday, with the euro reaching a three-year high against the USD. This downturn in the dollar's performance was accompanied by a continued selloff in the Treasury market, which worsened from the previous Tuesday night's meltdown. The yield on the 10-year Treasury note surpassed 4.5% on Thursday morning, indicating a potential for the biggest weekly loss since 2019, when the Federal Reserve had to intervene.

Analysts have suggested that markets are beginning to recognize the potential implications of a 10% baseline tax on nearly all trading partners. Although this tax rate is lower than initially proposed, it could still pose challenges for inflation and economic growth. The uncertainty surrounding trade policy has left markets in a state of flux, with the administration now having 88 days to finalize deals with 150 countries. This situation has raised concerns about the potential fallout with China, which has increased levies on US imports from 84% to 125%.

Consumer sentiment has also taken a hit, with data released this morning indicating a drop to 50.8 in April, down from 57 in March. This decline was lower than expected and reflects growing pessimism among consumers. Additionally, the one-year inflation outlook has risen from 5% to 6.7%, further adding to the economic uncertainties.

Despite the challenges, there is some optimism. Trump’s National Economic Council Director Kevin Hassett expressed confidence that there is a substantial inventory of deals nearing completion. However, the past week's communications from the White House have left many skeptical about the administration's ability to deliver on these promises. As the week comes to a close, the market's focus will likely shift to the upcoming negotiations and the potential impact on global trade and economic stability.