Dollar Strengthens on Hawkish FED, Yields Advance

Dollar Strengthens on Hawkish FED, Yields Advance


The dollar index which measures the greenback against a basket of major currencies climbed to a one-week high of 96.85, supported by hawkish Federal Reserve and Italy's uncertainty. The Federal Reserve kept interest rates unchanged in a range of 2.00-2.25%. The Fed declined to comment about October's volatility but mentioned that the "growth of business fixed investments has moderated from its rapid pace earlier in the year." The ongoing trade war between China and the United States could be a key reason for the drop in investments as some companies reported that they limited their investment plans. There were some speculations in the market ahead of the meeting that the Fed could cool down the tightening stance, but this didn't happen, and the Fed reaffirmed its tightening monetary policy stance. As a result, the greenback and the Treasury yields advanced.  The USDJPY rose to a one-month high of 114.08, and the USDCAD traded at a two-month high of 1.3185. The US 10-year yields mounted above 3.20%, and the 2-year yields rose to 2.984%, the highest since 2008.


The Euro dropped against its peers on the negative headlines concerning Italy's budget. The European Commission expects the Italian economy to grow more slowly than the government thinks in the coming two years and would lead to higher budget deficits. The standoff between Italy and the EU is likely to continue, especially after the comments of Claudio Borghi, the Head of Budget Committee, whether the EU will have the courage to impose sanctions on Italy. The EURUSD fell to a one-week low of $1.1335, and the EURJPY dropped to a three-day low of 129.09.


Gold prices fell sharply as the dollar regained strength following the Fed's meeting. The gold ounce is drifting lower for the sixth consecutive day and traded at a low of $1217, and could log the largest weekly decline since August. On the other hand, the silver ounce tumbled to a one-week low of $14.34.


Oil prices are about to close lower for the fifth consecutive week on oversupply woes. The prices declined by more than 20 percent from their four-year highs in early October to enter in a bear market. A slowdown in the global economy and higher output are putting downward pressure on the prices. The West Texas Intermediate crude futures dropped to an eight-month low of $60.34, and the Brent futures fell to a low of $70.49.


Major Economic Events

GMT Country Event Expectation Previous
9:30 UK GDP (QoQ) (Q3)  P 0.6% 0.4%
9:30 UK GDP (YoY) (Q3) 1.5% 1.2%
9:30 UK Industrial Production (MoM) (Sep) -0.1% 0.2%
9:30 UK Manufacturing Production (MoM) (Sep) 0.1% -0.2%
13:30 US PPI (MoM) (Oct) 0.2% 0.2%
13:30 US Core PPI (MoM) (Oct) 0.2% 0.2%
18:00 US U.S. Baker Hughes Oil Rig Count   874


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