10/11/2023 

US dollar update

USD dollar Summary

Yesterday, the U.S. Treasuries experienced a significant selloff, particularly affecting the 20-year and 30-year bonds. The U.S. 30-year yield surged by 22 basis points, the 20-year yield increased by over 20 basis points, and the 10-year yield rose by 18 basis points, surpassing the 4.60% mark.

Furthermore, Federal Reserve Chair Jerome Powell delivered a hawkish speech at an IMF event. Powell reiterated the Federal Open Market Committee’s (FOMC) commitment to proceed cautiously and emphasized the Fed’s readiness to raise interest rates if necessary. Chairman Jerome Powell also said, “The FOMC is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 percent over time; we are not confident that we have achieved such a stance.”

After these events, the U.S. dollar strengthened significantly, as the U.S. dollar index climbed to 105.82, the highest weekly price. Today there’s a mild correction and the index retraces to 105.65, ahead of the Michigan consumer sentiment index announcement.

Market Views & Opinions

Commerzbank released today the “Outlook 2024 – Consequences of the new inflation regime” document. Commerzbank’s economists have the following views regarding the U.S. economy and the EUR-USD:

 “As far as the consequences for the financial markets are concerned, the main factor in 2024 will be whether or not the US economy slides into recession. We expect this to happen, which is why we expect 10-year bond yields to fall in the US (year-end forecast ’24: 3.7%) and also in the eurozone (2.0%), particularly in the first half of 2024. However, this is a temporary recovery insofar as it should become clear towards the end of 2024 that the inflation problem has not been solved.

We expect the EUR-USD exchange rate to recover moderately in 2024 (year-end forecast 2024: 1.09). This is likely to be driven primarily by the US dollar, which is likely to suffer from the expected US interest rate cuts, just as it had previously benefited from the interest rate hikes. EUR-USD should also receive some support from the fact that the ECB is likely to cut interest rates less than the markets expect.”

According to Reuters, key developments that should provide more direction to U.S. markets later on Friday:

• • Some U.S. government offices observe early Veterans Day holiday, but stock exchanges open
  • University of Michigan November U.S. consumer survey
  • Dallas Federal Reserve President Lorie Logan, Atlanta Fed President Raphael Bostic speak; European Central Bank President Christine Lagarde and Bundesbank boss Joachim Nagel both speak
  • EU Economic and Financial Affairs Council budget meeting

IMPORTANT DISCLAIMER

The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.

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