The US Dollar (USD) is currently consolidating the significant gains it achieved last week, according to Shaun Osborne, Chief FX Strategist at Scotiabank.
Strong Yield Support for USD
Despite a slight pullback in equities at the start of the week, bond markets are showing broader weakness. Notably, the yield on the US 10-Year Treasury has climbed above 4% for the first time in two months, following Friday’s robust US jobs data, which diminished the likelihood of another substantial rate cut from the Federal Reserve in November. This shift in yield spreads has provided supportive conditions for the US Dollar Index (DXY). Furthermore, with growing attention on the upcoming presidential election, the USD appears well-positioned to maintain its strength or possibly strengthen further.
The recent uptick in the USD has occurred slightly ahead of the usual seasonal increase typically observed in the fourth quarter, which is often followed by a year-end decline. The DXY’s bullish momentum is reflected in its strong performance over the past week, and intraday patterns indicate a brief consolidation before another potential rise, possibly targeting the 103-104 range in the coming weeks. Today, Fed officials Kashkari, Bostic, and Musalem are scheduled to speak, with the latter two addressing the market after its close.
In related news, Japan will release labor cash earnings data for August later today. July’s figures were slightly revised downward to 3.4% from initial estimates. However, the underlying wage trends remain robust. While a solid increase in earnings may not significantly alter the market’s low expectations for tightening in October (with less than 1 basis point priced in for the 31st), it is likely to strengthen forecasts for potential tightening by the Bank of Japan (BoJ) at its next meeting on December 19th.
You Might Be Interested In
- Bank of Canada Governor Warns AI Adoption May Intensify Inflationary Pressures
- Gold Prices Hold Steady Near Record Highs Despite Strong Labor Market Data
- Unemployment Claims Dip Below Expectations, US Dollar Remains Steady
