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What Yield Drop Ahead Of Fed Minutes Means For U.S. Dollar

By Kathy LienForexJul 06, 2021 06:27PM ET
www.investing.com/analysis/what-yield-drop-ahead-of-fed-minutes-means-for-us-dollar-200590085
What Yield Drop Ahead Of Fed Minutes Means For U.S. Dollar
By Kathy Lien   |  Jul 06, 2021 06:27PM ET
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The June FOMC meeting minutes is one of this week’s key event risks. The Federal Reserve grew less dovish last month by opening the door to the discussion of reducing asset purchases, but since then disappointing U.S. data has investors questioning the timing of taper and ruling out an interest rate hike. Although Friday’s nonfarm payrolls report showed the strongest job growth in 10 months, average hourly earnings and the jobless rate fell short of expectations. Today, the Institute of Supply Management reported a slowdown in service sector growth with its non-manufacturing index falling from 64 to 60.1. This was not only weaker than anticipated, but the worse reading in four months. 
 
Yet, the U.S. dollar’s losses were limited to the Japanese Yen as the greenback traded higher against euro and other major other currencies. With the Dow Jones Industrial Average falling 200 points, renewed risk aversion drove investors out of risky currencies. However, the 5% drop in 10-year Treasury yields will make it difficult for the U.S. dollar to extend its gains even if stocks continue to fall. Between weaker U.S. data and the Fed’s desire to temper hawkish bets, the Fed minutes could sound more cautious and balanced than the FOMC statement and Fed projections. The sell-off in Treasury yields are a sign of bond investors positioning for less hawkishness. With USD/JPY peaking at 14-month highs after nonfarm payrolls, less hawkish FOMC minutes could also take USD/JPY to 110 and renew the greenback’s rally against other currencies.   
 
The sell-off in the euro was compounded by weaker Eurozone data. Although retail sales rose slightly more than anticipated, the German ZEW survey plunged from 79.8 to 63.3, a year-to-date low. Economists anticipated a more modest decline to 75.2. The Eurozone ZEW index also experienced a steep decline from 81.3 to 61.2, while German factor orders turned negative. This was the second straight month that Germany’s ZEW economic expectations index declined, but instead of expressing concerns about the drop, ZEW President Achim Wamach said:
 
“The economic development continues to normalize. The situation indicator for Germany has clearly overcome the coronavirus-related decline. Although the ZEW indicator of economic sentiment has once again fallen significantly, it is still at a very high level.”
 
The worst performing currency was the Canadian dollar, which was hit by the turn in oil prices. Crude rose to a six-year high before pulling back to end the day down more than 2%. This reversal was triggered by the announcement by OPEC that its upcoming meeting will be cancelled because key parties have been unable to agree on production changes. The breakdown in talks took the wind out of the oil market and, with no date for further talks announced, we could see a further correction. While this is important, focus for CAD will shift to data. IVEY PMI is due for release on Wednesday, followed by Canada’s labor market report on Friday. Increased vaccinations have allowed the country to rollback restrictions. After two months of sub-par job growth, economists and investors are looking for a strong number for June. 
 
In contrast, the New Zealand dollar’s losses against the greenback were limited by talk of a November interest rate hike. Several New Zealand banks are forecasting tightening by the RBNZ this year. The underperformance of the Australian dollar reflects the widening policy gap between the RBA and RBNZ. While the Reserve Bank of Australia announced that it will not be extending its three-year yield target bond from April 2024 to November 2024 and a reduction in bond purchases after its current QE program ends in September, it made it clear that interest rates will remain unchanged until inflation is sustainably between the 2-to-3% target range and wage growth is near 3%, goals that are unlikely to be met until 2024 at the earliest.
 
What Yield Drop Ahead Of Fed Minutes Means For U.S. Dollar
 

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What Yield Drop Ahead Of Fed Minutes Means For U.S. Dollar

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Comments (9)
Chris Black
ChrisBlackforex Jul 08, 2021 9:32PM ET
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You’re Best Fan love your work Beauiful Kay!
Maya Sonkar
Maya Sonkar Jul 07, 2021 9:02PM ET
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Hello I m Indian
Joel Link
Joel Link Jul 07, 2021 9:02PM ET
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am tanzanian
Legandary Mafia
Legandary Mafia Jul 07, 2021 8:53AM ET
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@kathy Lien, you always on poi3, it's always good to hear from you💯✅💰
Legandary Mafia
Legandary Mafia Jul 07, 2021 8:53AM ET
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Always on point...
bert prince
bert prince Jul 07, 2021 12:25AM ET
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thanks Kathythe bond market is puzzling. ism reading above 60 is good and average wages will go down as lower paid jobs come back.it neither geopardize the recovery nor policy normalization.
Mehrdad Gh
Mehrdad Gh Jul 06, 2021 10:36PM ET
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good analys 👍👍
Jul 06, 2021 8:51PM ET
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When was the last time hourly wages kept pace with inflation? Was it 30 years ago? 40 or more? In my lifetime never. The idea that taking every effort that drives up inflation and deficit spending and devalues the U.S. dollar will somehow align hourly wages to cost of living is ludicrous.
Delta UFO
DeltaUFO Jul 06, 2021 7:57PM ET
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Oh dear last time you said something kinda similar to this article and Dollars went up like crazy.
Dano nelson Awesome
Dano nelson Awesome Jul 06, 2021 7:16PM ET
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Luqman Firdaus
Luqman Firdaus Jul 06, 2021 6:59PM ET
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Malik Haji ahmad ahmad
Malik Haji ahmad ahmad Jul 06, 2021 6:59PM ET
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