Forex Today: Dollar rises with Treasury yields amid a dour mood

Here is what you need to know on Friday, October 21:

The market mood remains somber on the final trading day of the week, keeping the buoyant tone intact around the US dollar across the board. Asian markets track the overnight weakness in Wall Street stocks. The S&P 500 futures drop nearly 0.40%, as investors stay cautious amid surging US Treasury yields and looming recession fears. An unexpected drop in the US weekly Jobless Claims data and hawkish Fed commentary reinforced expectations that the central bank will be aggressive in hiking interest rates, which negated the impact of strong corporate earnings.

Federal Reserve Governor Lisa Cook said that ongoing rate increases will be required, as “inflation is too high, it must come down and we will keep at it until the job is done.” Philadelphia Fed President Patrick Harker said that they are not done with raising its short-term interest rate target amid very high levels of inflation, adding that “the interest rate will be above 4% by the end of 2022.”

The UK political developments also keep investors on tenterhooks. UK PM Liz Truss resigned as leader of the governing Conservative Party and said a new party leader and Prime Minister would be selected next week. So far, no MPs have publicly confirmed they are running, but names including former chancellor Rishi Sunak and the leader of the House of Commons, Penny Mordaunt, have been touted. Nominations will close at 2 pm on Monday and candidates are expected to have the backing of at least 100 MPs to run.

Amidst UK political chaos, disappointing Retail Sales data and rising US yields, GBP/USD is trading close to weekly lows below 1.1200 in early European hours. The benchmark 10-year US rates has surpassed the 4.25% level for the first time since 2008, helping dollar bulls regain upside traction. In light of this, USD/JPY is refreshing 32-year highs near 150.50, warranting caution for a likely Japanese intervention, as jawboning by the authorities continues. The BOJ once again conducted a bond-buying operation this Friday to defend its yield curve target (YCC).

EUR/USD is under pressure below 0.9800, largely in its familiar range so far this week. The upside attempts appear limited by the dollar and yields strength. Germany’s Bundesbank monthly report could offer some trading incentives, in an otherwise data-light docket on both sides of the Atlantic.

Meanwhile, the commodity currencies incurred sizeable losses amid firmer yields and a risk-averse market environment. AUD/USD is losing 0.27% on the day to challenge 0.6250 while NZD/USD is down 0.50% to mid-0.5600s. USD/CAD is advancing to near 1.3800, as WTI drops towards the $84 mark amid broad US dollar strength.

Gold remains on track to test the 2022 low at $1,615, as sellers retain control for the third day in a row.

Bitcoin price is threatening the $19,000 threshold after Thursday’s tepid recovery while Ethereum maintains its range play below $1,300.