The current dynamics of Treasury yields and dollar indicate the imminent end of the Fed's rate hike cycle.
While the stock market is focused on the corporate earnings season, Treasury yields have resumed their decline, signaling increased demand for them. Dollar, meanwhile, has weakened slightly against other major currencies.
Looking at previous data, particularly on the dynamics of the 10-year Treasury yield, it can be seen that demand for the asset is growing amid uncertainty over the development of events in the US economy and the global economy as a whole. Investors perceive Treasuries as a risk-hedging instrument, so growing fears about recession increase purchases of bonds, which, in turn, puts pressure on their yields. A similar situation may occur in the context of falling interest rates or amid expectations of their increase ending.
For the current situation, market sentiment is balanced due to two important reasons. First is the high risk of a recession starting in the US as early as this summer, which is evidenced by the decline in important economic indicators, primarily manufacturing ones. However, the decline in yields may also indicate hopes that the Fed's rate hike cycle will soon end. In this regard, the movement of dollar, which is downwards, serves as a peculiar indicator.
Thus, it can be argued that it is the expectation of the end of the rate hike cycle that puts pressure on dollar's rate. This synchronizes with the decline in Treasury yields and the upward movement of US stock indices. The three could intensify if the inflation indicators published this week - the personal consumption expenditures price index and data on the incomes and expenses - show a decrease.
Today, data on the number of building permits, consumer confidence index, and new home sales are due to be released. All these are forecasted to show a decline compared to the previous periods under review. If the figures are in line with expectations or lower, the Fed will be forced to end the process of raising interest rates.
Forecasts for today:
USD/CHF
The pair found support at 0.8860. It may recover to 0.8915, before declining to 0.8800.
XAU/USD
Gold is trading below 2000.00. If pressure on dollar intensifies, there will be further growth to 2045.00.
