The US Treasury yields have risen again since January 3, supported by the Fed's promise to raise interest rates three times in the new year.
Following a prolonged consolidation stage in the US government debt market, the start of the new year was marked by the continuation of Treasury sales, which boosted yields. Here, the yield on the benchmark 10-year-old T-Note surged to a local high of November 24 last year, which clearly affected the dollar exchange rate. In view of this, the ICE dollar index sharply increased after falling below the key level of 96.00 points on the last trading day of December and is above this key level again.
In the currency market, the US dollar noticeably gained against the yen and a little against the euro, but still remained under pressure against other major currencies. Observing everything that is happening, the question arises, can these local movements develop into something more significant?
We believe that this should not be expected yet due to the main reason – the publication of new US inflation data for the month of December. It was repeatedly pointed out that the Fed is in an extremely difficult situation. On the one hand, a strong rise in inflation in the country is forcing the regulator to act immediately and raise interest rates to curb this extremely unpleasant phenomenon, but on the other hand, raising rates will lead to pressure on economic growth, which is already under pressure, and an increase in the cost of borrowing will raise the cost of servicing public debt, which has already reached extreme levels. That is why the Fed, represented by its leader, does not specify the timing of the likely start of the rate hike process. And since these prospects remain very vague, the market is not ready to start actively buying the US dollar, while selling treasuries.
Therefore, we believe that until the release of important inflation data, the markets will most likely remain highly volatile on the wave of both local purchases of the US dollar and its sales. In general, the ICE dollar index is expected to continue consolidating near the level of 96.00 points.
Today, investors' attention will be drawn to the publication of ADP's employment data. According to the forecast, the US economy was to receive 400,000 new jobs in December against 534,000 in November. If the values turn out to be no worse than expected, this could lead to a limited increase in the US dollar and a surge in demand for shares of American companies. But again, it will hardly be possible to observe any significant changes in the financial markets until the inflation figures are released.
Forecast for the day:
The EUR/USD pair is consolidating above the level of 1.1280 while remaining in the range of 1.1230-1.1360. If the figures for new jobs from ADP do not turn out to be worse than forecast, the pair will most likely continue to decline to the level of 1.1230.
The USD/JPY pair rallies towards the target level of 117.00. If the values from ADP do not disappoint, it will be possible to observe the pair's increase to this level.