The U.S. Dollar Eases Back from Highs as Treasury Yields Continue to Climb
The U.S. dollar has retreated from its earlier highs on Thursday, with the 10-year Treasury yields continuing to surge upward in response to strong economic data and hawkish comments from Federal Reserve Chairman Jerome Powell. The U.S. dollar index, which serves as a benchmark for the greenback’s strength against a basket of six major currencies, has fallen by 0.37% to 95.32 as of 11:08 AM ET (15:08 GMT).
The yield on the benchmark 10-year Treasury note has risen to levels not seen since 2011, following upbeat economic data and Powell’s comments that bolstered expectations of an interest rate increase in December. The yield is currently up by 1.36% to 3.204%, having jumped nearly 4% in the previous session.
Fed Chairman Jerome Powell’s Comments Suggest Interest Rates May Rise Above Neutral
In a statement on Wednesday, Fed Chairman Jerome Powell noted that the U.S. central bank may raise interest rates above an estimated "neutral" setting as the U.S. economy continues to grow. According to Powell, interest rates are still accommodative but gradually moving towards a place where they will be neutral, neither holding back nor spurring economic growth.
Powell also suggested that the Fed may go beyond neutral and increase interest rates further, stating that "we’re a long way from neutral at this point, probably." This statement has added fuel to the fire of speculation surrounding an impending rate hike in December.
Strong Economic Data Bolsters Expectations of Rate Increase
The data released this week has shown that private sector hiring increased at its fastest pace in seven months in September while weekly jobless claims numbers fell to a nearly 49-year low. These indicators have contributed to the strengthening expectations of an interest rate increase in December, with market participants increasingly anticipating a more hawkish monetary policy stance from the Federal Reserve.
Euro and Sterling Recover Amid Weaker Dollar
The euro has recovered some ground due to the weaker dollar, with EUR/USD increasing by 0.39% to 1.1522. Meanwhile, sterling has surged amid reports that the European Union and the UK are in the final stages of Brexit negotiations. GBP/USD rose by 0.70% to 1.3030.
Other Major Currencies React to Dollar Weakness
The dollar has slid lower against the yen, with USD/JPY down by 0.69% to 113.74. The Australian dollar is also lower, with AUD/USD down by 0.20% to 0.7090. NZD/USD fell by 0.21% to 0.6499, while USD/CAD rose by a minimal 0.01% to 1.2870.
Conclusion
The U.S. dollar has retreated from its earlier highs as Treasury yields continue to climb in response to strong economic data and hawkish comments from Fed Chairman Jerome Powell. The market’s anticipation of an interest rate increase in December has added to the uncertainty surrounding the greenback’s value, with investors closely monitoring developments on monetary policy. As the U.S. economy continues to grow, the potential for further interest rate hikes remains a pressing concern, with implications for currency markets and global trade.