Greenback consolidates positive aspects as U.S. yield curve continues to flatten By Reuters

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© Reuters. FILE PHOTO: An worker of the Korea Change Financial institution counts 100 U.S. greenback notes throughout a photograph alternative on the financial institution’s headquarters in Seoul April 28, 2010. REUTERS/Jo Yong-Hak

By Saikat Chatterjee

LONDON (Reuters) – The U.S. greenback consolidated positive aspects on Monday after hitting a 1-1/2 yr excessive on Friday because the Treasury yield curve prolonged a three-week flattening streak following hawkish feedback by a Federal Reserve official.

With the Fed clearly signalling its intent to lift rates of interest as early as March after its assembly final week, cash markets and main Wall Avenue banks at the moment are anticipating as many as 5 fee hikes this yr.

However some traders anticipate policymakers are making ready the markets for a quicker tempo of fee will increase this yr to verify inflationary pressures particularly after final week’s sturdy information.

The Fed might supersize an rate of interest enhance to half a proportion level if inflation stays stubbornly excessive, Atlanta Fed President Raphael Bostic instructed the Monetary Instances in an interview.

“Bostic is a non-FOMC voter so I’d not get too carried away by his feedback however you can say he’s testing the market waters,” mentioned Kenneth Broux, a strategist at Societe Generale (OTC:).

“The talk of 25 bps (foundation factors) or 50 bps in March explains why the greenback ought to preserve doing properly and shares might stay shaky within the short-term.”

Versus a basket of its rivals, the dollar rebounded off early lows to regular at 97.13 after rising to a mid-2020 excessive at 97.44 on Friday. The greenback’s 1.6% soar final week was the most important weekly rise since mid 2021. Lengthy greenback positions remained close to their highest ranges this yr.

A faster tempo of fee hikes can be seen as dampening future progress expectations, a state of affairs that’s taking part in out within the bond markets the place spreads between two and ten-year U.S. Treasury yields fell under 59 bps for the primary time since early November in a phenomenon referred to as “bear-flattening.” [US/]

Market expectations of as many as 5 fee hikes this yr “displays the rising perception that the Fed is behind the curve in combating upside inflation dangers and might want to ship extra front-loaded tightening,” Mizuho strategists mentioned in a notice.

U.S. information on Friday confirmed the core private consumption expenditures (PCE) value index, the Fed’s most popular inflation gauge, rose 4.9% year-on-year, the most important enhance in 39 years.

Hedge fund positioning in foreign money markets additionally mirrored a broadly consolidative development with web greenback lengthy positions edging increased however holding under latest highs.

The Australian greenback was among the many early gainers versus the dollar with the up greater than 0.7% at $0.7048 earlier than a central financial institution coverage assembly on Tuesday.

The Financial institution of England additionally holds its assembly on Thursday, with a Reuters ballot of economists predicting a second fee hike in lower than two months after UK inflation jumped to its highest in practically 30 years.

The European Central Financial institution additionally has a coverage assembly on Thursday. Whereas no coverage change is anticipated, analysts are beginning to warn that approaching fee hikes from the Fed will shrink the ECB’s window for motion.

In cryptocurrencies, bitcoin was holding above $37,000 after a quiet weekend for the digital asset.

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