Dollar Strengthens as Bond Yields Surge, Fed Rate Hike Bets Grow for This Year

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The U.S. dollar strengthened against major currencies in trading at the New York foreign exchange market after U.S. Treasury yields surged to their highest levels in decades, supported by expectations that the Fed will raise interest rates again this year. The dollar index rose 0.4% to 102.242, while the yield on the 10-year U.S. Treasury note jumped to 5.350%, the highest level since 2002. The yield on the 30-year Treasury bond climbed to 5.724%, a 24-year high, and the 2-year Treasury yield rose to 4.818%. Concerns over supply disruptions from the war with Iran pushed oil prices higher, reviving inflation worries and increasing the odds that central banks will extend their rate-hiking cycles, which triggered a global bond selloff. The minutes of the Fed's September meeting showed that officials were divided over the rationale for a 0.25% rate increase. The CME Group's FedWatch Tool indicated that investors priced in only a 17.2% chance of a Fed rate hike at the October meeting, down from 37.6% a week earlier, but assigned an 85% probability to a Fed rate hike at the December meeting.

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