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Peter Davis

An writer at FOMOdrive

  • Oct 23, 2023
  • 2 min read

Falling bond yields have sent the US dollar crashing

After reaching multi-year highs, US Treasury yields (UST) experienced a sharp decline.

The dollar index dropped to its lowest point in nearly a month, around 105.5, against this backdrop.

Westpac is aiming to keep DXY growth at 109 in the upcoming quarters.

JPMorgan has predicted that the dollar will stay strong over the next 3-6 months.

On Monday, 10-year Treasury yields rose to a 16-year high of 5.02%, following comments from Federal Reserve Chairman Jerome Powell that the U.S. economy's strength and strong labor markets may necessitate monetary policy tightening.

The 10-year yield dropped significantly, ending the day at 4.85%, a decrease of 2.2%. This caused most currencies to gain strength against the US dollar.

On Monday, the dollar briefly surpassed the 150 level against the yen before retreating.

Mizuho Securities notes that the dollar/yen rate is currently stuck around 150, as some investors are betting that the Bank of Japan will defend the 150 level, while others are taking rising US bond yields as a sign to push the dollar higher.

Speculation has been circulating that the Bank of Japan (BOJ) may adjust the yield curve band during its upcoming monetary policy review next week. However, the BOJ has also made it clear that it will not permit domestic yields to increase significantly.

Westpac expressed surprise that the dollar index has not yet reached its October peak, despite its strong base of high yields, which is supported by robust economic growth, increased energy production, and its status as a safe haven in the face of growing worries about the Middle East.

The bank predicts that the DXY will not drop below 105.5 and anticipates that it will reach 109 in the first to fourth quarters.

JPMorgan predicts that the US dollar will stay strong over the next 3-6 months, due to the "exceptionalism" of the US economy and the large interest rate gap in favor of the dollar.

Global inventories being low, fears of supply disruptions, and general geopolitical tensions should all provide support for oil and gas prices.

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