DBS Group Research economist Eugene Leow discusses USD rates as market participants reassess views following volatility and mixed US data. He notes 10Y US Treasury yields are nearing a 4% near-term forecast and describes a Goldilocks US economy with strong NFP and softer CPI. DBS now expects the Fed to cut rates twice in 2H 2026, contingent on moderate labour markets and benign inflation.

Fed cuts delayed into second half

"Market participants are finetuning their view on USD rates amidst increased market volatility and recent data."

"This proved to be the case in the bout of volatility last week where US Treasuries stood out to be the asset class of choice when things go awry. Notably, 10Y yields are now very close to our near-term forecast of 4%."

"From a macro standpoint, the economy seems to be in “Goldilocks” mode."

"There are a couple of takeaways. First, labour market data determines the urgency of cuts. This set of data would mean that the Fed would stay on hold for some time."

"Against this backdrop, our Fed call has shifted. We now see the Fed cutting 25bps each in 3Q and 4Q, for a terminal rate of 3.25% (previous: 25bps cut in 1Q for a terminal rate of 3.50%)."

"Note that this Fed path is contingent on a moderate labour market and continued softness for inflation and may also imply some pressure from Trump to ease."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)