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The US Dollar has continued its recent period of weakness despite an upward revision in third-quarter US GDP growth forecasts to an annualized rate of 2.5%, up from the previous estimate of 2.0%. According to analysis by Lloyd Chan at MUFG, the greenback is failing to capitalize on stronger economic output data due to broader structural concerns in the bond market. Persistent fiscal deficits and elevated long-end US Treasury yields are beginning to act as a drag on investor sentiment rather than a driver of currency strength. For financial markets and currency traders, this disconnect highlights a shift in how macro indicators are being interpreted. Typically, robust economic growth and high bond yields boost a country's currency. However, when yields rise primarily due to heavy government borrowing and debt supply concerns, it can signal fiscal vulnerability. This dynamic is capping the dollar's upside potential and forcing forex markets to reassess the sustainability of high interest rates. Looking ahead, market participants should closely monitor upcoming Treasury auctions and federal budget updates to gauge supply pressure on US debt. If long-term yields remain elevated while the dollar continues to consolidate or slide, capital flows may shift toward alternative safe-haven assets or major foreign currencies. Investors will also focus on incoming inflation data to see if economic growth leads to renewed price pressures.
