Dollar Rebounds as Stocks Fall, Eyes on Treasury Auctions by

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LYNXMPEA5T0DN M — On Wednesday, the (DXY) rebounded, surpassing the 105 mark. This move has sparked debate among market observers as to whether this marks the start of a new uptrend or is just a continuation of trading within a certain bandwidth amid a period of low volatility. The recent pattern of soft results from the auctions of two-, five- and seven-year US Treasuries has contributed to a rise in longer-dated US yields, by around 25 basis points in recent weeks. This rise in interest rates has put downward pressure on stock markets.

The drop in stock prices has apparently allowed the dollar to adjust to firmer US short-term rates, particularly the two-year USD swap rate, which has risen again to 4.85%. This reflects a recalibration of market expectations regarding the Federal Reserve’s possible easing of monetary policy.

Overnight developments have indicated that US Treasuries may receive additional support. A successful two-year auction of Japanese government bonds (JGBs) has helped limit the rise in Japanese government bond yields, which in turn has been a contributing factor to rising government bond yields. Additionally, the recent release of the Federal Reserve’s Beige Book seemed somewhat muted, with observations of a somewhat more pessimistic economic outlook and a shift in labor market dynamics, including lower turnover and greater bargaining power for employers.

Today, investors are anticipating the release of revised US first-quarter GDP data for 2024, which is expected to show a slight downward revision, alongside the quarterly core Personal Consumption Expenditures (PCE) price index, which is expected to steady on an annual basis hold 3.7% quarter-on-quarter. However, the upcoming April PCE core data release on Friday is expected to be more important for the direction of the market. Additional economic indicators expected to be released include weekly unemployment claims and trade data for April.

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The outcome of Friday’s inflation data is expected to be a crucial factor in determining the next major trend for the dollar.

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