Market Shock: US Dollar Falls From Two-Week Peak, US Bonds Calm!


The dollar eased slightly on Thursday as US Treasury yields steadied, after the currency strengthened to a two-week high the previous day amid easing considerations of Federal Reserve interest rate cuts.

The index that measures the US currency against its major currencies strengthened to 105.18 overnight, the highest since May 14. Waima was last down 0.25% at 104.87.

A two-day jump of 15 basis points above 4.6% for long-term Treasury yields helped push the US dollar higher on Wednesday by increasing the attractiveness of US debt. However, the yield was last down around 3 basis points at 4.594% on Thursday.

The jump in yields, which moved against prices, was driven by a number of stronger-than-expected data, including hawkish comments from Federal Reserve policymakers, and a series of poorly received bond auctions.

The euro was up 0.2% at $1.082 after slipping 0.5% on Wednesday to hit a two-week low of $1.0789 overnight.

"Market players today will be watching the bond market to see if there is further selling," said Chris Turner, head of global markets at ING. Turner said strong demand for Japan's government bond auction may help stabilize global debt on Thursday.

The US Dollar was down 0.6% against the Japanese yen at 156.71 after hitting a one-month high of 157.72 the previous day.

Charu Chanana, head of FX strategist at Saxo Bank, said traders may be concerned that it is approaching the 158 level with the threat of intervention by Japanese authorities. Market players suspect the Japanese government intervened to support its currency in late April and early May, which may be confirmed by data out on Friday.

Sterling was up 0.1% at $1.2714 after slipping 0.5% on Wednesday. The Swiss franc slipped around 0.7%, with HSBC analysts pointing to the Swiss National Bank saying it could intervene to strengthen the currency if a weaker currency causes import inflation to rise.

Expectations for a Federal Reserve interest rate cut this year have eased again amid signs of disappointing inflation.

Traders now see a roughly 55% chance of a quarter-point cut at the end of the September meeting, down from a 57.5% chance a week ago, according to CME Group's FedWatch Tool.