Title: U.S. Dollar Strengthens on Rising Treasury Yields: EUR/USD, GBP/USD, USD/CAD, USD/JPY Forecast
Author Credit: Based on an article by James Hyerczyk, FXEmpire
Expanded with additional market insights sourced from ForexLive, CNBC, and Investing.com.
The U.S. dollar regained bullish momentum on Tuesday, buoyed by a renewed rise in Treasury yields and changing investor sentiment around the U.S. interest rate outlook. The greenback’s climb put pressure on major currency pairs such as the euro and British pound, while bolstering the greenback’s position against the Canadian dollar and Japanese yen.
Rising Treasury yields, hawkish Federal Reserve comments, and shifting expectations for future rate cuts all played a role in supporting the U.S. dollar’s recent rally.
U.S. Dollar Rebounds as Treasury Yields Rise
On June 11, 2024, the U.S. dollar strengthened broadly in the currency market, as benchmark 10-year Treasury yields moved higher amid declining rate-cut expectations. Economic data suggesting resilience in the U.S. economy has pushed yields upwards and prompted traders to reduce the odds of any near-term monetary policy easing by the Federal Reserve.
Key drivers of the dollar’s rise:
– Treasury yields surged, with the 10-year yield hitting 4.46 percent, reflecting cautious optimism in U.S. economic data and lowered expectations of dovish Federal Reserve policy.
– Fed officials signaled unwillingness to cut interest rates without clear signs of easing inflation.
– Currency traders responded by adjusting long positions, pushing the DXY (U.S. Dollar Index) higher toward 105.30 on Tuesday.
– The move up in yields and the dollar has coincided with risk-off market sentiment as traders await key upcoming inflation data and the June FOMC rate decision.
U.S. Consumer Price Index (CPI) Data in Focus
The next major catalyst for the U.S. dollar is the release of the May CPI report, scheduled for Wednesday, June 12, 2024, at 8:30 AM ET. Market participants are particularly sensitive to inflation data as it will shape the Federal Open Market Committee (FOMC) meeting later the same day.
Expectations for May CPI:
– Headline CPI is forecast to rise 0.1 percent month-over-month, slowing from 0.3 percent in April.
– Core CPI, which excludes food and energy, is expected to increase 0.3 percent in May, matching the previous month’s pace.
– Annual headline CPI is expected at 3.4 percent, while core CPI is projected to come in at 3.5 percent.
If inflation comes in above expectations, it could reinforce the Fed’s cautious stance, leading to additional support for the U.S. dollar.
Federal Reserve Meeting Preview
The FOMC is widely expected to leave interest rates unchanged on June 12, but traders will closely analyze the updated economic projections (“dot plot”) and Chair Jerome Powell’s post-meeting press conference for clues about future policy moves.
What to Watch:
– New Summary of Economic Projections: Will likely show a reduction in expected rate cuts in 2024, down from three to possibly one.
– Fed Funds Futures: Markets are now pricing in roughly a 50 percent chance of a rate cut in September compared to over 60 percent last week, according to the CME FedWatch Tool.
– Powell’s Remarks: Any hint that elevated inflation is persisting and that policy may remain restrictive for longer could extend the dollar rally.
Technical Outlook and Fundamental Drivers for Major Currency Pairs
EUR/USD: Sliding on Yield Divergence
The euro pulled back for a second consecutive session to trade near 1.0730 support on Tuesday. The currency pair has been pressured by broad dollar strength and weaker German economic sentiment.
Key Factors:
– Germany’s ZEW Economic Sentiment Index dropped to 47.5 in June, down from 47.
Read more on USD/CAD trading.