The dollar is poised to slide into a “modest bear market” as Treasury yields collapse on the back of the Federal Reserve’s dovish pivot.

That’s the view of Amundi Pioneer Asset Management’s Paresh Upadhyaya, who says Intercontinental Exchange Inc.’s U.S. Dollar Index may drop 5 per cent to 10 per cent from current levels as American short-term interest rates fall closer to yields in the rest of the world. The gauge’s decline to its 200-day average price signals a “moment of truth,” tweeted Jeffrey Gundlach, chief executive officer at DoubleLine Capital.

Treasury 10-year yields fell to 1.97 per cent Thursday, the lowest since 2016, while markets are pricing in more than 25 basis points of easing at the Fed’s July meeting. The Dollar Index has tumbled 1.1 per cent in June, heading for the biggest monthly loss this year. The 200-day moving average was at 96.633 on Friday.

“It is hard to imagine global central banks out-easing the Fed in the coming months since everyone has run out of ammo with negative rates, compared to the Fed that has a nice cushion,” Upadhyaya said Thursday by email. “This marks the green light for the start of the USD bear market.”

The bearish outlook marks a slight shift for Upadhyaya, who before the latest Fed meeting said a depreciation in the dollar could take months to materialize. He’s still keeping the door open for a slow move.

“If the data remains sound and if there are signs of an impending deal” between the U.S. and China, the Fed could “hold its fire,” Upadhyaya said. “While it looks like a rate cut in July is a done deal, the door is not entirely closed for a pass at the July meeting.”

Despite the potential for Fed cuts, there are still plenty of factors on the greenback’s side. Treasury yields remain relatively high compared with other developed markets, with the world’s stockpile of negative-yielding bonds topping US$13 trillion.

Uncertainty about global economic growth may fuel haven demand for the dollar as investors question whether rate cuts will provide the desired boost. With a number of Fed policy makers scheduled to speak in the next week, there’s a risk they could dial back the dovish rhetoric.

Still, Fed watchers generally view a rate cut in July as most likely. Almost half of policy makers in the Federal Open Market Committee indicated Wednesday they are leaning toward a cut by year-end. Wall Street’s sell side is also jumping on board.

Lower interest rates will gradually eat into the advantage the dollar gets from higher yields, said Zach Pandl, head of global foreign-exchange strategy at Goldman Sachs Group Inc. Morgan Stanley’s Hans Redeker expects a rate cut in July that “could pave the way for further USD weakness.”

--With assistance from Alyce Andres and Robert Fullem.