In recent months, we have witnessed a breakdown in the correlation between the dollar and US yields. The Dollar Index and the 10-year Treasury yield moved almost in lockstep from October to February: yields rising, stronger dollar. A classic pattern.
But in March, something changed. Yields kept climbing — sharply — while the dollar went the other way, falling below the 104 mark.
Why did this happen? And what does this divergence between bonds and currency really tell us?
In the new video, I explain it clearly and directly, using charts and concrete references. But this isn’t just about technicals: the breakdown in correlation may reveal much more about trust, global perception, and systemic risk.
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See you in the next video! David
Dollar vs Treasury Yields – Watch the Full Video
In this video, I analyse a significant and unusual divergence between the US Dollar Index (DXY) and 10-year Treasury yields. Historically, the two tend to move together — yields rise, and the dollar strengthens. But in recent weeks, this relationship has broken down. The dollar fell while yields surged. What does this mean for traders, investors, and the broader macroeconomic outlook?
Understanding the Dollar-Yields Correlation
For years, the correlation between the US dollar and Treasury yields has been a cornerstone of macro and forex analysis. Higher yields attract foreign capital, increasing demand for the dollar. Conversely, falling yields generally weaken the dollar as returns become less attractive. This dynamic has been observable across multiple market cycles and is deeply embedded in trading strategies, from algorithmic models to discretionary macro desks.
From October to February: The Classic Pattern
Between October 2023 and February 2024, the textbook correlation held strong. Treasury yields rose steadily in anticipation of sticky inflation and delayed rate cuts by the Federal Reserve. Simultaneously, the Dollar Index gained strength, reflecting confidence in US assets and the appeal of relative interest rate differentials.
March 2024: A Break in the Pattern
However, in March, a disconnect emerged. Despite continued upward pressure on Treasury yields — with the 10-year briefly touching 4.4% — the Dollar Index began to weaken. This shift was not subtle: the DXY broke below key support levels, while bond yields pushed to new short-term highs. Such a divergence raises fundamental questions.
What Is the Market Signaling?
A breakdown in this correlation can be more than noise. It may signal a re-pricing of risk, a loss of confidence in US assets, or structural changes in global capital flows. The market may be saying: “Higher yields no longer compensate for perceived risk.” This could include fiscal concerns, political uncertainty, or shifts in international reserve allocation.
Potential Explanations for the Divergence
Flight to safety into non-USD assets: Despite rising US yields, investors may be rotating into other safe havens like gold or the Swiss franc.
Expectations of stagflation: A scenario where yields rise due to inflation fears but the growth outlook weakens can be bearish for the dollar.
Global trust dynamics: Recent geopolitical developments and increased scrutiny of US fiscal policy may be eroding the global trust premium once enjoyed by the dollar.
What This Means for Forex Traders
For those trading forex, this decoupling complicates the usual playbook. Relying solely on yield differentials may no longer be sufficient. It is essential to factor in broader macro themes, including central bank credibility, geopolitical risk, and shifts in global capital preferences. This is especially relevant for EUR/USD, USD/JPY, and emerging market currencies.
Check out my detailed guide on forex fundamental analysis to better integrate macro signals into your trading decisions.
Market Sentiment, Positioning, and Structural Risk
Positioning may also play a role. If large speculative players were long dollars expecting a continuation of the yield rally, a sudden reversal can lead to sharp unwinds. CFTC data around this period shows a notable reduction in net long USD positions — a potential confirmation that the move has macro roots rather than being purely technical.
A Broader Macroeconomic Signal?
There’s also a possibility that this divergence between the dollar and yields is a broader warning sign. The market might be front-running a deterioration in US creditworthiness, or pricing in increased global fragmentation in currency preferences. The implications could extend far beyond forex, touching on equity flows, bond volatility, and even commodity prices.
Implications Beyond the Charts
While technical traders may dismiss this as a temporary anomaly, macro traders and long-term investors should take note. Historically, breakdowns in reliable correlations often precede major regime shifts. The dollar-yield divergence may be telling us that global capital allocation models are evolving — and that the assumptions underpinning them need to be revisited.
To stay ahead of these shifts, consider reading my book on Forex Fundamental Analysis, where I break down the true drivers of currency movements beyond short-term indicators.
Conclusion: Something Is Broken — But What?
The title of this video and article says it all: something is broken. Whether it’s trust in the US financial system, the credibility of central bank communication, or simply the market’s appetite for yield vs risk — the old rules are no longer working as expected.
Watch the full video to see the charts and reasoning behind this view. It’s a timely and necessary analysis for anyone exposed to currency risk or interested in global macro trends.
David is a financial analyst with over 30 years of experience, including two years as a fund manager, specialising in currencies and commodities. He is the author of several successful books on trading and financial markets.
