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Why Wall Street Loves The U.S. Dollar Now?

By Fullerton MarketsForexSep 27, 2021 02:16PM ET
www.investing.com/analysis/why-wall-street-loves-the-us-dollar-now-200603191
Why Wall Street Loves The U.S. Dollar Now?
By Fullerton Markets   |  Sep 27, 2021 02:16PM ET
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The road to higher Treasury yields finally appears to be clearing up as the Fed edges closer to ending emergency pandemic policies. This is certainly good news for the dollar.
 
After being stagnant for months, 10-year Treasury yields broke through the top of a range held since mid-July, surpassing 1.40% and ended the week at 1.45%. That’s up from the 2021 low of 1.13% in August.
 
Bears are emboldened, prompting a fresh round of shorts betting that US debt will keep falling, which drive the yields up even more. Scoring a sustainable victory on that trade won’t be easy. The massive jump in yields during the first quarter petered out as COVID resurgence dimmed the economic growth outlook.
 
However, now, a hawkish tilt from the Federal Reserve has cleared the way for yields to rise further. Nominal yields are still low and will move higher, but there is a fight going on in the rates market between the fundamentals—inflation looks positive and supports higher yields, while the technical from demand flows from the Fed and foreign buyers. Eventually, the fundamentals will win out and yields will slowly grind higher.
 
The Fed Chair, Jerome Powell, said last week that in November, the central bank could start tapering its asset purchases that helped the US economy weather COVID-19. The exit of such a big bond buyer might cause yields to leap higher. Officials also updated their forecasts for the Fed’s benchmark rate, showing that some see an increase by the end of 2022, a more hawkish projection than most strategists foresaw.
 
Traders will get a hint of how feasible that is in early October when the next monthly jobs report comes out. Powell is trying to frame the tapering and rate-increase decisions as separate from each other, but he seems to be fighting a losing battle. This week’s updated dot plot, coupled with the tentative tapering schedule, spurred derivatives traders to bring forward their targets for the first hike: December 2022 versus early 2023.
 
The US unemployment rate fell to 5.2% in August, well below the April 2020 peak of 14.8%. It is still above the 3.5% rate that prevailed in February 2020, just before the pandemic struck. This data could be good news for the dollar.
 
Meanwhile, inflation, according to the Fed’s preferred measure, was 4.2% in the 12 months through July, above the central bank’s 2% target. Many Fed officials have said that they expect it to return to around 2% after temporary supply-chain disruptions resulting from the pandemic have been resolved, despite several citing the rapid price increases as a reason to begin raising rates as early as next year. 

Why Wall Street Loves The U.S. Dollar Now?
 

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Why Wall Street Loves The U.S. Dollar Now?

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Comments (5)
Rise Unlimited
Rise Unlimited Sep 27, 2021 11:06PM ET
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September deadlines. 2022 Politics for seats. 2025 War with China.
Miles Mathewson
Miles Mathewson Sep 27, 2021 8:28PM ET
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Because they are tired of being wrong!! Less than a year ago they were all doomsday on the USD, now they love so it might go down
Alan Rice
Alan Rice Sep 27, 2021 5:55PM ET
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Schizoid Dems will continue to keep the buck heavily in the red. ($28,000,000,000,0...)
Tobi Ilesanmi
Tobi Ilesanmi Sep 27, 2021 5:46PM ET
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Hello
Boubacar Jawo
Boubacar Jawo Sep 27, 2021 3:56PM ET
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