Analysts at BBH, in their latest note, maintain a bullish outlook for the US Dollar (USD) amid a further rise in the US Treasury bond yields ahead of the Fed Beige Book, due for release later during the US session this Wednesday.
“DXY is trading higher just above 102 as rising U.S. yields lend some support. Break above 102.036 sets up a test of the April 10 high near 102.807.”
“The 2-year yield traded near 4.28% today, the highest since March 15. While it is well off the 3.55% low from March 24, it is still well below the March 8 high near 5.08%. Elsewhere, the 10-year yield traded near 3.63% today, the highest since March 22. Similarly, it is well off the 3.25% low from April 6 but it is still well below the March 2 high near 4.09%. As markets normalize and Fed rate cuts get priced out, U.S. yields should continue to edge higher. In turn, this should help the dollar.”
“Since the March 21-22 meeting, the data suggest that activity is slowing, the labor market is softening, and price pressures are easing. Notably, supply chains continue to improve. We believe the Beige Book will highlight these trends that could support a pause after what is widely expected to be another 25 bp hike. However, we believe it will also leave the door open for further tightening if needed. Between the May 2-3 and June 13-14 meetings, the Fed will have digested two more job reports, two CPI/PPI reports, and one retail sales report. At this point, a pause in June might just be the most likely outcome but it really will depend on how all that data come in. Goolsbee and Williams speak today.”
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