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On January 29th, the US Treasury yield curve steepened for the second consecutive trading day, primarily driven by a weaker dollar and stronger oil prices, both of which boosted inflation expectations. The 2-year/10-year Treasury yield spread widened to 67.6 basis points at one point, up from 66.6 basis points at the close on Tuesday. The yield curve exhibited a typical "bear market steepening" characteristic, where longer-term yields rise faster than shorter-term yields as investors price in the risk of renewed inflation acceleration. Gunnett Dingela, Head of US Interest Rates Strategy at BNP Paribas, stated, "Weaker dollars typically lead to longer-term yields becoming more sensitive to inflation risks. Therefore, the dollar and Treasuries often act as pressure relief valves for the combination of monetary and fiscal policies. If the combination of fiscal and monetary policies suggests that the dollar will continue to weaken, then I think the rise in long-term yields is a textbook reaction."The German DAX 30 index closed down 91.30 points, or 0.37%, at 24,816.93 on Wednesday, January 28; the UK FTSE 100 index closed down 55.50 points, or 0.54%, at 10,152.30 on Wednesday, January 28; and the French CAC 40 index closed down 86.14 points, or 1.06%, at 8,066.68 on Wednesday, January 28; European The Stoxx 50 index closed down 62.53 points, or 1.04%, at 5932.06 on Wednesday, January 28; the Spanish IBEX 35 index closed down 206.52 points, or 1.16%, at 17597.58 on Wednesday, January 28; and the Italian FTSE MIB index closed down 343.94 points, or 0.76%, at 45096.50 on Wednesday, January 28.The percentage of winning bids for the 4-month U.S. Treasury bonds auctioned as of January 28 was 45.62%, compared to 50.47% previously.The bid-to-cover ratio for the US 4-month Treasury bond auction ending January 28 was 2.92, compared to 2.99 previously.The US 4-month Treasury auction on January 28th yielded a winning bid of 3.59%, compared to 3.58% previously.

The US Dollar Index maintains a level below 98.00, as sluggish GDP and ADP Payrolls rekindle concerns

Drake Hampton

Mar 31, 2022 09:54

Key Takeaways

  • The DXY has fallen below 98.00 following a disappointing performance by the US GDP and ADP Payrolls.

  • The risk-taking instinct has eroded the allure of safe-haven assets.

  • This week's big events include the US NFP and Russia-Ukraine peace negotiations.

 

The US dollar index (DXY) is under pressure from sluggish US economic indicators and increased demand for risk-sensitive assets following a positive conclusion from the first face-to-face Russia-Ukraine peace negotiations in Turkey. The big dollar-denominated index has fallen below 98.00, which has served as a significant support level in recent weeks.

Changes in the US GDP and ADP Employment

Wednesday's poor performance by US economic indices triggered a sharp sell-off in the mighty dollar. The US Bureau of Economic Analysis reported quarterly Gross Domestic Product (GDP) growth of 6.9 percent on an annualized basis, somewhat lower than forecasts and the previous print of 7%. While Automatic Data Processing (ADP) reported Employment Change of 455k, which was less than the market consensus of 450k and the previous print of 486k.

The positive consequence of Russia's peace talks with Ukraine

The withdrawal of Russian forces from northern Ukraine and the capital Kyiv following the conclusion of negotiations between Russia and Ukraine has bolstered market mood. Risky assets are gaining traction in an upbeat market environment, as investors view the event as a positive step toward a ceasefire. While Ukraine has recommended adapting a neutral position in light of its decision to refrain from alliances. On April 1, the nations will resume their peace talks through the internet.

 

This week's significant events include the release of Core Personal Consumption Expenditure, Initial Jobless Claims, Nonfarm Payrolls (NFP), the Unemployment Rate, and the ISM Manufacturing PMI.

 

On the back burner, prominent subjects include the Russia-Ukraine peace talks, the OPEC meeting, and Fed President John C. Williams' address.

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