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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 USD/CHF exchange rate surges above 1.0060 as the risk-off sentiment regains dominance

Alina Haynes

Oct 20, 2022 15:21

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The USD/CHF pair reversed its minor decline from 1.0063 at the start of the Asian session and resumed its climb. Prior to the risk-on profile losing momentum, the asset exhibited a juggernaut rally to approximately 1.0063.

 

After two consecutive days of gains, a slight dip in the S&P 500 diminished investors' appetite for risk and drove demand for safe-haven assets. The US dollar index (DXY) oscillates slightly below the immediate barrier of 113.00 and appears on the verge of breaking through. In addition, 10-year US Treasury rates have reached a 14-year high of 4.14 percent as bets on a greater rate hike by the Federal Reserve have increased (Fed).

 

Regarding the Swiss franc, investors anticipate the release of the Trade Balance data. It is projected that the economic statistics will climb to 3,558M from 3,425M in the previous report.

 

The road map presented by James Bullard, president of the St. Louis Fed Bank, suggests that the central bank would maintain its hawkish stance for an extended length of time. Fed policymakers expect the central bank to raise interest rates by an additional 75 basis points (bps) when it meets on November 1 and 2, with a second 50 or 75 bps increase likely in December. Before relying on statistics, he highlighted that the Fed must first identify the proper rate level.

 

Despite some signs of slowing in certain areas, the Fed's Beige Book reported that price rises remained elevated. Therefore, price pressures remain a cause of concern. While the price of fuel and transportation has reduced, the cost of inputs for businesses has climbed. Labor demand is low due to firms' unwillingness to raise payrolls in expectation of an economic recession.

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