U.S. Treasuries market indicates that inflation growth may start to slow down, which is likely to induce more traders to sell dollar
Flattening U.S. Treasuries’ curve suggests Fed could revisit its rates normalization path in 2H, such as slowing down the pace of hiking interest rates, which would induce trades to increase their dollar shorts positions, Fullerton Markets analysis shows.
- Latest FOMC minutes contained few surprises, which indicates that Fed is paring back its strong stance of raising the rates in 2H
- Most of the participants at the meeting felt it would “soon be appropriate” to increase the Fed funds rate again, as long as the economy stayed on track, overnight FOMC minutes shows; we can’t ignore one important condition here: economy needs to be staying on track before the next move
- Chart below reflects that bond traders don’t believe the inflation growth to further accelerate, as the yield spread narrows
- Negative dollar would favor USD/JPY to move lower, continue to expect the pair to move towards 110
Fullerton Markets Research Team
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