Treasury yields and the dollar fell to multi-month lows on Wednesday after a US Federal Reserve official offered fresh hints of a rate cut, while stocks were mixed globally.
Federal Reserve money futures rose on statements that indicated that the cuts were priced at more than 100 basis points in 2024 and a 40% chance that they would start as soon as March. Two-year US Treasury yields fell sharply and touched new lows in the Asian session. Bond yields move inversely with securities prices.
The yield on the two-year bond hit its lowest level since mid-July at 4.69%, and the benchmark 10-year yield fell 6 basis points to its lowest level since September at 4.28.%.
Eurozone sovereign yields also fell and markets increased bets on interest rate cuts after data from North Rhine-Westphalia, Germany’s most populous state, supported expectations of lower German inflation. In the latest trade, the dollar fell 0.1% to 147.33 yen, after earlier trading at 146.68 yen, its lowest level since Sept. 12. The dollar also weakened against the euro to reach a three-and-a-half-month low of $1.1017.
Federal Reserve Governor Christopher Waller — a former influential and hawkish voice at the US central bank — told the American Enterprise Institute on Tuesday that interest rate cuts could begin within months, provided inflation continues to fall.
Waller’s remarks echoed previous comments made by Fed Chairman Jerome Powell. US statements were immediately taken into account,” he said, adding that central banks in major economies had begun to make “mixed observations” on inflation.
Markets Oscillate as Bond Yields Fall and Currencies Stabilize
Bond yields continue to fall as the prospect of cutting inter-central interest rates increases. We’ve gotten less aggressive inflation data from Australia, Spain, and Germany, all of which exacerbate the narrative we saw at the beginning of the week. Fed Waller’s comments continue to resonate, with Treasury yields falling further today.
10-year yields fell below the 100-day moving average, suggesting a further rise in bond-related business. But the dollar managed to avoid further declines, at least for now, in European trading. USD/JPY rebounded from a low of 146.70 in Asia to 147.60 now, but unless something changes in the bond market, it’s hard to see this rebound continue.
The dollar also pared early losses against the euro and GBP, with EURUSD falling from 1.1000 to 1.0980 and GBP/USD falling from 1.2730 to 1.2690 currently.
Meanwhile, stocks started waking up for the new week as European indices and US futures rose during the session.
However, this is not a factor affecting major currencies, as the contradictory showed a more mixed mood with the Australian dollar being punished after weak inflation data. Meanwhile, the New Zealand dollar is leading gains after a tighter stance by the Reserve Bank of New Zealand earlier in the day.
In commodities, oil is looking forward to consecutive days of strong gains as OPEC+ appears to have settled its differences ahead of tomorrow’s meeting. Meanwhile, the breakout movement in gold has been paused amid the dollar’s recovery for the time being with precious metals trading mostly stabilizing at a level just below $2,040.
Dollar and Pound Volatility Points to Uncertainty in Markets
The US dollar traded sideways at the start of the European session, with the currency stabilizing near multi-month lows.
US dollar exchange rates have come under noticeable pressure in recent weeks as the Federal Reserve’s interest rate outlook has become increasingly pessimistic.
After a number of disappointing US data, talk has now shifted from when the Fed will formally end its rate hike cycle, to when the US central bank will start cutting interest rates. With the current consensus that this will start by mid-2024.
These expectations are likely to only be strengthened if data such as the latest US consumer confidence figures continue to disappoint, leaving the US dollar vulnerable to further losses. Meanwhile, sterling remained lower on Tuesday morning, amid weakening risk appetite in the market.
Broadly optimistic market sentiment has helped boost support for sterling over the past couple of weeks, so a more cautious mood will give GBP investors some pause to think. However, any downside for the pound seems limited as long as markets remain encouraged by recent comments from BoE policymakers.
Recent statements from officials have taken on a noticeably hawkish tone, and appear to suggest that the Bank of England may be open to raising interest rates at least again before ending the current tightening cycle.
Looking ahead, the US pound exchange rate may come under pressure on Wednesday with the publication of the latest US GDP figures.
The latest third-quarter growth estimate is expected to confirm that activity in the US economy rose sharply between July and September, despite pressure from higher interest rates. This flexibility may encourage the Fed to hold out a little longer before starting to ease monetary policy.
Ringgit jumps against dollar on expectations of slowing US interest rates
The ringgit closed higher today for the third consecutive day against the dollar amid growing expectations of an early rate cut in the United States.
This followed a new pessimistic talk, this time by Christopher Waller, a respected and former hardline member of the US Federal Reserve yesterday. The market basically understands Waller’s comments regarding the possibility of a rate cut early next year due to slowing inflation in the United States.
“The volume of currency movement has been significant, especially with important first-level economic data coming out later this week.
Specifically, traders await the US PCE inflation reading on Thursday and the Institute for Supply Management (ISM) Manufacturing PMI on Friday.
Thus, he said traders may adopt a cautious approach while waiting for this important data to be released. Innes believes that the market is going through a phase of reducing the strength of the US dollar in the long term.
At the close, the ringgit was mostly higher against a basket of major currencies.
Against the euro it rose at 5.1014/1075 from 5.1140/1178 at Tuesday’s close, slightly against the British pound at 5.8951/9021 from 5.8965/9009 but fell against the Japanese yen to 3.1513/1553 from 3.1430/1456 previously.
The dollar also pared early losses against the euro and GBP, with EUR/USD falling from 1.1000 to 1.0980 and GBP/USD falling from 1.2730 to 1.2690 currently.
