Treasury yields tumble as another Fed President turns dovish, reports Adam Button.

The tumble in Treasury yields continued on Monday and began to take a toll on the U.S. dollar as St. Louis Federal Reserve President James Bullard shifted his rhetoric more dovish. The greenback's tumble is also magnified by the 1.5% rise in gold — the biggest daily percentage change since late January. Fed Chair Jerome Powell speaks Tuesday at 9:55 am Eastern on what will be a closely-watched event. Ashraf Laid highlights key "cyclical" developments in the Fed-Markets reflexivity layout and the existing trades, identifying the important implications for the June 19 FOMC meeting.

The White House fanned the flames of protectionism more on Monday by removing a designation that helped India avoiding tariffs. A separate report said President Trump had considered tariffs on Australian metals. A weekend white paper from China also hinted at an unwillingness to back down to the United States.

The S&P 500 fell 8 points but that doesn't tell whole story. Equities have benefitted from plunging rates and that's cushioned the fall. The severe worry is in rates as U.S. two-year Treasury yields fell another 9 basis points to 1.83%. On May 22, they were at 2.26%. The Fed funds futures market is now pricing in a 50% chance of a rate cut at the July 31 FOMC meeting.

The market is hanging on signals about negotiations with China and Mexico but an economic toll is beginning to weigh. The ISM manufacturing index fell to 52.1 from 52.8 and is now at the lowest since October 2016.

The Fed's Bullard shifted further towards the dovish camp on Monday by saying a cut could be needed soon. Late last month he had said a cut could be needed before year-end, so he moved up the timeline. He also acknowledged the signals from the bond market.

Today features a speech from Powell in Chicago. The topic is monetary policy strategy and communication, but there is no Q&A so this may not be a market-moving speech. Yet, it would be a prime opportunity to crack open the door towards rate cuts. If so, the dollar will be primed for another day of selling as the crowded USD-short trade lightens up.

Adam Button is co-owner and managing director of ForexLive.com and a contributor at AshrafLaidi.com