US Dollar, DXY Index, Fed, ECB, Euro, EUR/USD – Talking Points
- The U.S. dollar has relaxed after a stellar overnight rally
- Government bond yields are back on the rise, underpinning the DXY index
- If the US dollar doesn’t win, how low will it go? EUR USD go?
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The US dollar rallied again overnight after Boston Fed Chair Susan Collins issued hawkish comments, stressing that interest rates need to be raised and the extent of hikes would depend on the data.
Better-than-expected jobless claims also boosted sentiment before the Atlanta Fed’s Raphael Bostic dampened the celebrations by suggesting rates could peak next summer. Although he said that raising interest rates slowly and steadily is the right course of action.
Federal Reserve Governor Christopher Waller also rang the bell and said rate hikes could be more aggressive if the data warranted it.
Nonetheless, the Overnight Index Swap (OIS) and futures markets are pricing in a 25 basis point hike at the next 3 Federal Open Market Committee (FOMC) meetings. At one point, the overnight futures market implied a closing Fed rate of nearly 5.5%. A far cry from the 4.90% priced in January.
Government bond yields continued their trot towards new highs, with the 2-year bond trading at 4.94%, its highest since July 2007, while the benchmark 10-year bond has crouched above 4% since she reached 4.09%.
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The DXY index retraced yesterday’s losses through the New York close, but eased slightly in the Asian session.
The DXY Index is a US dollar index that is benchmarked against EUR (57.6%), JPY (13.6%), GBP (11.9%), CAD (9.1%), SEK (4, 2%) and CHF (3.6%) is weighted.
While the Fed is concerned to ensure it is ahead of the curve in tightening, the European Central Bank appears to be capturing as inflation data there has accelerated again.
Yesterday, Europe-wide CPI rose to 0.8% m/m for February, well above 0.5% exp and -0.2% earlier. The year-over-year figure was 8.5% instead of the forecast 8.3% and previously 8.6%.
The OIS market will be raised 50 basis points by the European Central Bank (ECB) at its meeting in 2 weeks, with possible further 50 rises thereafter. EUR/USD slipped below 1.0600 yesterday but has recovered somewhat.
While San Francisco Fed Chair Mary Daly will speak later today, next week’s focus will be on Fed Chair Jerome Powell. He will testify before the Senate Banking Committee when he delivers his semi-annual monetary policy report on Tuesday
DXY INDEX AGAINST 2 AND 10 YEAR TREASURY YIELD
Chart Created in TradingView
— Written by Daniel McCarthy, Strategist for DailyFX.com
To contact Daniel use the comments section below or @DanMcCathyFX on twitter
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