The dollar index weakened on Tuesday as slowing U.S. growth and tariff concerns drove risk aversion. Treasury yields fell for a fifth straight session, with the 2s-10s curve flattening to +19.7bps. Consumer confidence dropped sharply, adding to market volatility ahead of month-end rebalancing. Treasury Secretary Bessent emphasized reducing government spending, while Richmond Fed’s Barkin signaled a cautious approach on rate policy.

Euro Gains as Rate Differentials Shift

EUR/USD rose 0.41%, supported by widening EU-U.S. rate spreads and speculation of a Ukraine peace deal. ECB’s Nagel noted room for rate cuts if inflation eases, while key option expiries between 1.04-1.06 contained movement. USD/CHF hit a year-to-date low of 0.8908 as franc shorts unwound.

Pound Nears Yearly High as Dollar Weakens

GBP/USD climbed 0.32%, approaching 1.2690, as falling U.S. yields weighed on the dollar. UK PM Starmer pledged to boost defense spending, but near-term pound moves remain dollar-driven. A break above 1.2811 is needed for further gains.

Yen Rises as Risk-Off Sentiment Prevails

USD/JPY slid 0.44% to 148.56 before paring losses. Lower global bond yields and equity weakness lifted the yen, pressuring yen crosses. AUD/JPY fell 0.52% as commodity-linked currencies struggled.

Equities and Commodities Weaken on Growth Fears

The S&P 500 lost 0.39%, dragged by tech and consumer discretionary stocks. WTI crude dropped over 2% to a two-month low on demand concerns, while gold fell 1.4% on profit-taking. Copper declined 0.69% amid China tariff worries.

Market Outlook: Dollar Struggles Ahead of Key Data

EUR/JPY edged down 0.03%, while GBP/JPY dipped 0.13%, reflecting cautious sentiment. AUD/USD slid 0.13% as traders awaited Australia’s CPI data. Markets remain on edge ahead of Nvidia’s earnings and key inflation reports.