FXTM information and reviews
OctaFX information and reviews
XM information and reviews
FXCC information and reviews
Libertex information and reviews
FxPro information and reviews

Dollar and yields surge after US inflation jump, stocks sink

13 June 2022 Written by Raffi Boyadjian  XM Investment Analyst Raffi Boyadjian

Inflation in the United States jumped to a fresh 40-year high of 8.6% y/y in May, confounding expectations that it would hold steady at 8.3%. The month-on-month rate increased by a shock 1% and core CPI also rose by more than forecast, dashing hopes that inflationary pressures might have started to settle down. The strong CPI reading comes just days before the Federal Reserve is set to announce its next rate hike decision. Although half-point rate increases are already baked in for both June and July, the Fed will publish its updated dot plot on Wednesday and after the latest CPI beat, it’s very likely the median dot will shift higher.

Before Friday’s hot inflation numbers, investors were optimistic that a peak was in progress, which would have allowed the Fed to pause, or at the very least, to slow down the pace of tightening to 25 basis points in September. That doesn’t seem very likely now. Instead, there’s a high risk policymakers will signal a 50-bps hike for September, and possibly for November too.

Dollar follows Treasury yields higher, yen mostly firmer

Bond yields shot up in the aftermath of the data, with the US 10-year yield rallying to a near four-year high of 3.25% today. Eurozone yields, which were already roiled a day earlier following the ECB’s hawkish rate hike forecasts, also climbed sharply. More specifically, part of the US yield curve has inverted after the five-year yield rose above the 30-year one on Friday, in a possible warning sign for a looming recession.

The spike in both short- and long-dated Treasury yields as well as the heightened worries of an economic downturn boosted the US dollar, pushing its index towards May’s two-decade high. The yen also benefited from the risk-off sentiment, rising against all of its major peers except for the greenback, which briefly hit a 24-year top of 135.17 yen.

The yield on 10-year Japanese government bonds cracked the upper limit of the Bank of Japan’s yield cap of 0.25% today, providing the yen an additional lift. But it has also put BoJ policymakers in a predicament ahead of the Bank’s policy decision on Friday. The Bank of Japan is one of four central banks meeting this week and before the latest moves in the bond market, its decision was the most likely to be a non-event. But some kind of a tweak to its yield curve control policy cannot be ruled out now.

Pound’s prospects bleaker after UK GDP miss

This week’s other central bank meetings are the Bank of England and Swiss National Bank. Speculation is mounting that the SNB will announce the start of its exit from negative rates on Thursday, though it will probably wait a bit longer before doing so. The Bank of England is anticipated to hike rates by 25 bps again the same day but after today’s very disappointing GDP figures out of the UK, policymakers might be hesitant to signal further tightening.

The UK economy unexpectedly contracted in April, with output in all sectors declining and dragging GDP down by 0.3% month-on-month. The pound was last trading 0.8% lower on the day at $1.2216 and could soon breach the $1.22 level as Britain looks increasingly likely to enter a recession amid the spiralling cost of living that is pressuring consumers.

Stock markets in freefall

In equities, Asian and European stocks slumped at the start of the week’s trading following the selloff on Wall Street on Friday. The S&P 500 and Nasdaq Composite plummeted by 2.9% and 3.5% respectively, as expectations of the Fed taking its foot off the brake pedal faded quickly after the CPI data. US futures point to further steep losses today. E-mini futures for the S&P 500 indicate it could drop below the May low and slip below the 3,800 level. It’s hard to see this week’s central bank meetings providing any relief for equities unless of course by Wednesday, the mood has turned so sour that if the Fed isn’t any more hawkish than what is feared by investors right now, dip buyers might have a reason to step in.

By XM.com



Stocks drift, dollar firms as markets brace for US jobs slowdown
Stocks drift, dollar firms as markets brace for US jobs slowdown

Recession jitters were abound on Friday even as markets got off to a steady start following a few wobbles along the week. PMI indicators around the world painted a grim picture for services activity, suggesting major economies...

5 Aug 2022

Wall Street bounces, shrugs off Taiwan tensions and hawkish Fed
Wall Street bounces, shrugs off Taiwan tensions and hawkish Fed

Geopolitical tensions and recession fears appear to have faded into the background for investors as shares on Wall Street staged another impressive rally on Wednesday...

4 Aug 2022

Fed hawks lift yields out of the doldrums, yen pauses for breath
Fed hawks lift yields out of the doldrums, yen pauses for breath

Bond markets were reeling and interest rate futures were being recalibrated after Federal Reserve officials questioned the recent scaling back of rate hike expectations by investors...

3 Aug 2022

US-China tensions dent appetite as yields crumble, dollar creeps higher
US-China tensions dent appetite as yields crumble, dollar creeps higher

Risk sentiment took a knock on Tuesday as it emerged that the Speaker of the US House of Representatives Nancy Pelosi is on her way to Taiwan, defying China’s strong advice against...

2 Aug 2022

Crude Oil Is Afraid of Geopolitics
Crude Oil Is Afraid of Geopolitics

The commodity sector remains rather tense on Monday; Brent is trading at $102.75. Global geopolitics is what investors are focused on right now. Any complications in this area muddy the water...

1 Aug 2022

Dollar slips further as easing rate hike bets bolster stocks
Dollar slips further as easing rate hike bets bolster stocks

The US dollar has started August on the backfoot as markets are increasingly convinced that the Federal Reserve’s rate hike days are numbered, while Wall Street has just notched up its best month since November 2020...

1 Aug 2022

Forex Forecasts

HFM information and reviews
IronFX information and reviews
FXCM information and reviews
Pepperstone information and reviews
NordFX information and reviews
LegacyFX information and reviews

© 2006-2022 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.