US Dollar Nears Long-Term Breakdown as Bond Yields Plunge and Euro Surges

U.S. Treasury yields continue to drop toward a key level, signaling growing fears of an economic slowdown. The 10-year yield is testing key support near 4%, as investors brace for aggressive rate cuts by the Federal Reserve in September. At the same time, tariff-related uncertainty is weighing on corporate investment and fueling a rush into safe-haven bonds.

These forces are affecting economic conditions and pushing the U.S. dollar lower. Capital is rotating into risk assets and alternative stores of value, marking a potential turning point in global markets and monetary policy expectations. This article presents a comprehensive analysis of the dollar’s breakdown risk, bond market signals, and the rising strength in the euro and Swiss franc to understand the broader shift in global capital flows.

Treasury Yields Plunge Toward 4% as Recession Fears Grow

Long-term US Treasury yields are falling sharply. The 10-year US yield dropped to 4.05%, testing its key support zone between 4.0% and 4.1%. This marks a decisive shift in bond market sentiment as investors brace for steeper Federal Reserve rate cuts.

The sharp decline in yields reflects growing fears of a slowing economy. This is also confirmed by the Cass Freight Index, which remains in a strong downtrend. A drop below 1.0 on the index would likely confirm recession conditions. This index is sending an early signal, as a leading gauge of freight volume and shipping costs across North America.

The market participants are pricing in deeper rate cuts. The bond market now expects the Fed to respond aggressively to the weakening economic backdrop. This comes amid added uncertainty from the tariff-related court rulings, which threaten to reduce corporate investment and accelerate economic contraction.

The drop in US Treasury yields has broader implications. It reduces financing costs, lifts equity valuations, and signals looser financial conditions. However, it also presents rising recession risk. A break below 4% in US 10-year Treasury Yields confirms that the market sees more downside ahead in growth expectations.

Tariff Ruling Fuels Instability and Accelerates Bond Rally

A recent court ruling overturned Donald Trump’s “reciprocal” and “fentanyl” tariffs, creating uncertainty for businesses. This has shaken investor confidence and raised concerns that companies may cut back on investment, potentially slowing economic growth.

Trump has appealed to the Supreme Court, but a final decision may not come until next year. If the court doesn’t pause the ruling, the U.S. Treasury might have to return billions in collected tariffs. This could add more financial and political uncertainty at a time when recession fears are already high.

The uncertainty is weighing on corporate planning. Companies now face a murky regulatory landscape, making them less willing to invest. This adds further pressure on economic growth and strengthens the bond rally as investors move toward safer assets.

Most of the tariff costs have been absorbed by US corporations. However, these costs are likely to pass through to consumers with time. If firms avoid raising prices, their profits and the taxes they pay will shrink. This indirectly reduces government revenues and adds to broader concerns about the deficit.

When businesses and consumers lose confidence in future policy, they pull back. This creates a feedback loop of reduced investment, slower growth, and weaker inflation expectations. These factors push yields lower.

In short, tariff uncertainty is amplifying recession risks. Moreover, this is adding strong momentum to the bond market rally. Investors are rushing to safety, and Treasury yields are the clearest reflection of that fear.

Loose Financial Conditions and Risk Rotation Pressure the Dollar

On the other hand, loose financial conditions are adding further pressure on the US dollar. As Treasury yields fall and recession concerns increase, market liquidity has surged. This influx of capital is flowing into risk assets, weakening demand for the dollar as a safe-haven.

The loose conditions are also observed by the high-yield bond spreads, which continue to decline in 2025, as shown in the chart below. Investors are no longer demanding significant premiums to hold riskier debt. This shift indicates confidence that interest rates will drop and that liquidity will remain abundant. The compression in spreads also reinforces the idea that monetary policy is expected to ease significantly in the coming months.

On the other hand, Bitcoin (BTC) has surged to a new record high in 2025, while gold (XAU) broke its key $3,500 level in September. This momentum reflects strong investor appetite for alternative assets. In addition, the strong performance in high-beta sectors and continued buying in the S&P 500 further confirm that markets expect easier financial conditions.

As capital rotates into stocks, crypto, and commodities, the dollar faces headwinds. The U.S. Dollar Index is now testing a critical support zone between 96.5 and 97. The weakening dollar is not an isolated event. It reflects excess liquidity, falling yields, and shifting global capital flows. Investors are betting on rate cuts, and those expectations are being priced into multiple asset classes. For the dollar, this signals sustained downside unless the macro backdrop changes significantly.

In this environment, the euro and Swiss franc could gain strength. As interest rate gaps shrink and confidence improves, money may keep moving out of the dollar.

Dollar Index Approaches Critical Breakdown Zone

As investors price in deeper Fed rate cuts and shift capital toward risk assets, the dollar faces sustained weakness. This weakness is observed using the monthly chart below, which shows that the index is approaching a key level near its long-term breakdown zone.

A break below the 96 level could open the door for a drop toward the 90 level. The strong three-month consolidation around this area suggests a breakout is likely. This breakdown may trigger a sharp surge in commodity prices.

EUR/USD Breaks Out Above 1.12 as Dollar Weakens

As the US Dollar Index breaks lower, EUR/USD is gaining strength. The monthly chart shows that the pair has broken above the pivotal 1.12 level, triggering strong bullish price action. The next key resistance lies near the 1.22 region.

If the dollar weakens further toward the 90 level, EUR/USD could surge toward this resistance. The long-term chart shows a strong base forming around parity, suggesting the pair may continue higher in the coming months.

Moreover, the short-term price action for EUR/USD shows strong consolidation within a triangle pattern. This consolidation follows a bullish breakout from a cup formation near the 1.12 level. The pattern confirms that EUR/USD remains in a strong uptrend.

On the other hand, the RSI stays above the mid-level, highlighting continued bullish momentum. A break above the recent high will likely trigger another strong upward move in the EUR/USD pair.

USD/CHF Breaks Long-Term Support as Swiss Franc Gains Momentum

As the US Dollar Index continues to decline, the Swiss franc is gaining strength. This strength has helped USD/CHF break the key long-term support at the 0.8300 level. This breakout opens the door for a strong move lower in the pair.

The long-term chart shows that USD/CHF has been trading within a broad range between 0.83 and 1.03 for the past 10 years. A breakout below 0.83 suggests that downward momentum will likely continue. This long-term consolidation also aligns with the broader breakdown in the US Dollar Index. A further drop in USD/CHF could reinforce weakness in the US dollar.

The weekly chart of USD/CHF shows strong consolidation around a pivotal level. A red dotted trendline is approaching the 0.78 to 0.79 region, highlighting this zone as a key support area. USD/CHF is currently trading within a triangle formation at this level, suggesting the next move could test 0.79.

However, a break below 0.78 would likely trigger a more significant decline. Additionally, the formation of a double top pattern in May and October 2022 signals a long-term bearish outlook for USD/CHF.

Bottom Line: Long-Term Macro Shift in Dollar, Bonds, and Capital Flows

The sharp decline in Treasury yields and growing recession fears have triggered a flight to safety, fueling a powerful bond market rally. At the same time, tariff-related uncertainty and weakening economic data are weighing heavily on corporate investment and fiscal confidence. As yields fall further and rate cut expectations increase, risk assets continue to gain traction, reflecting a broad shift in market sentiment.

The U.S. dollar is now under sustained pressure, with the index nearing a long-term breakdown. A break below the 96 level would confirm a structural shift and likely trigger a sharp decline toward 90. This weakness in the dollar could drive capital into alternative assets such as gold, Bitcoin, and foreign currencies like the euro and Swiss franc.

This shift is already visible, with gold breaking above the key $3,500 level, Bitcoin reaching new record highs in 2025, EUR/USD breaking above its long-term pivot at 1.12, and USD/CHF falling below the 0.83 support. If current macro conditions persist, this trend may accelerate, signalling a major turning point in global capital flows and currency markets. Investors may continue to favour the euro, Swiss franc, and gold as leading alternatives during the next major leg down in the U.S. dollar index.