U.S. Dollar Surges as Strong GDP and Labor Data Fuel Treasury Yield Gains

GDP Surprise Sparks Treasury Yield Rally

The U.S. dollar climbed sharply Wednesday, powered by a stronger-than-expected GDP print and solid labor market indicators, which lifted Treasury yields ahead of the Federal Reserve’s latest policy decision.

The economy expanded at a 3.0% annualized rate in Q2, well above the 2.3% estimate and reversing the prior quarter’s 0.5% contraction. The rebound was primarily driven by a sharp drop in imports and a 1.4% rise in consumer spending, which helped offset weaker business investment and export volumes.

Following the GDP release, the 10-year Treasury yield rose 3 basis points to 4.352%, while the 2-year yield climbed to 3.90%—both reflecting reduced expectations for aggressive Fed easing. The 30-year yield edged up to 4.884%, maintaining the curve’s steepness and signaling a market reassessment of growth resilience.

ADP Report Confirms Labor Market Strength

ADP’s July employment data added to bullish dollar sentiment, showing private payrolls increased by 104,000 versus the 64,000 consensus estimate. The report marked a clear recovery from June’s downwardly revised 23,000 loss. Key gains were seen in leisure (+46,000), financial services (+28,000), and construction (+15,000). Wages held steady at 4.4% year-over-year, supporting the view of sustained consumer demand.

Notably, hiring was concentrated among medium and large firms, which together added 92,000 jobs, while small businesses lagged with just 12,000. Sectoral weakness was evident in education and health services, which shed 38,000 jobs, potentially hinting at deeper structural issues.

Inflation Cools, but Fed Expected to Hold

Alongside stronger growth and jobs data, inflation metrics eased. Core PCE inflation slowed to 2.5% in Q2 from 3.4% previously, providing the Fed more flexibility as it finalizes its rate decision. While markets widely expect no change in policy this meeting, attention will shift to Chair Powell’s post-decision comments for clues on the likelihood of a rate cut later this year.

Dollar Outlook: Strength Likely to Persist

The U.S. Dollar Index (DXY) continues to draw support from robust GDP and labor data, now hovering near 99.00 with intraday highs approaching 99.45.

With Treasury yields elevated and core inflation moderating, traders are recalibrating rate cut expectations and leaning into dollar strength.

If Chair Powell refrains from signaling an imminent policy pivot and Friday’s NFP confirms labor market resilience, DXY could make a push toward the next resistance level at 99.84. However, a pullback below 99.17 could reintroduce short-term selling pressure. For now, momentum favors dollar bulls heading into key data.

More Information in our Economic Calendar.