The financial markets are undergoing a revolution. The 10-year US Treasury yield has plummeted to a five-month low, recently landing just above 4.02% and hovering between 4.04% and 4.05% today as of this writing. Given the lagged effect of rate hikes on the economy, these yields are assumed to peak at 3.5% in March 2024. By August, these priorities had dropped to 2.5%. With Treasury yields moving, this complicates assumptions in currency trading and economic predictions. Investors Are Getting Ready for Key Economic Data Investors, like most Americans, are focused on the upcoming Consumer Price Index (CPI) report.
With the dollar approaching $1.1730 late in the trading session, it made a close at the session high. This historic increase is a testament to the ways investors are already responding to the new yield paradigm. The first level of support for the dollar could be found in the $3600 range. That means dangerous levels to monitor very carefully in the coming days. The US dollar has put on a remarkable show against other currencies. It has strengthened further against the Japanese yen, threatening JPY148.50 today or tomorrow, especially if US yields push higher after tonight’s CPI numbers.
In Japan, producer prices fell by 0.2%. The year-over-year rate increased from 2.5% to 2.7%. This latest development is a reflection of the ongoing inflationary pressures in the Japanese economy. These pressures will likely weigh heavily on the Bank of Japan’s monetary policy decision making. Emerging market currencies enjoyed noteworthy strength. In particular, the Brazilian real, Chilean peso and Peruvian sol have risen to be the three best performers in the G20 in the last few trading days.
Across the Atlantic in Europe, the French 10-year premium over German yields has narrowed further. At the same time, French stocks are doing much better than Germany’s DAX index. These dynamics in European markets, indicative of changing investor sentiment and regional economic fundamentals, may help drive currency values.
On tech indicators, traders would be wise to be wary, with a break below $1.1650 likely to dent the dollar’s near-term bearish fundamentals. The greenback tumbled to a two-and-a-half week low versus the Mexican peso, printing close to MXN18.5660. Forecasts now estimate that Mexico’s GDP will contract by 0.9% this year and grow only 1.1% in 2024. It will increase by 2027 even more, to 1.3%.
The British pound skyrocketed following the print of the US Producer Price Index (PPI), peaking at around $1.3565. It immediately backed off, closing at $1.3530. During these movements, the dollar was largely confined to a very modest range against the yen. It traded on either side of JPY147.25 to JPY147.45 throughout the day.
Additionally, the greenback set a marginal new low for the year against the onshore yuan at CNY7.1175, amid adjustments made by the People’s Bank of China (PBOC), which set the dollar’s reference rate at CNY7.1034. These developments demonstrate the close ties between global currency markets. A change in one area can create waves across the mat to others.