The dollar retreated on Tuesday from the previous session's 18-month highs as long end US Treasury yields extended their decline from recent peaks and market participants prepared for a highly anticipated US CPI report.
Comments from New York Fed President John Williams kept the pressure on yields and, thus, the US currency late in the Americas session by saying he still sees one more interest-rate hike as appropriate this year, but at the moment does not believe it will be necessary for the central bank to increase rates again in 2027, Bloomberg News reported. Williams told Bloomberg News in an interview there are still signs inflation will slow “quite a bit” and approach the Fed’s 2% target next year.
Economists polled by Reuters expect September core monthly CPI growth to come in at 0.2% and the annual rate of underlying consumer price inflation at 2.5% when data are released on Wednesday.
The question for markets -- and the dollar -- is how much further the market needs to go in discounting price growth above the Fed's target.
Dan Ivascyn, chief investment officer at the world's largest bond manager, PIMCO, told Reuters that US Treasury yields may have further room to rise, with the Fed likely to deliver one or two more rate increases before the current tightening cycle ends.
Chicago Fed President Austan Goolsbee said inflation is starting to feel like "aggregate overheating" fueled by spillovers from the artificial intelligence investment boom rather than largely being a byproduct of supply shocks that will pass on its own.
Federal Governor Christopher Waller said the recent rise in US bond yields has been due to stronger economic growth and large-scale investment in artificial intelligence rather than to higher inflation expectations, which remain "well anchored."
Bank of America's latest Global Fund Manager survey found that the US 10-year Treasury yield would need to climb to nearly 6% before bonds become compelling enough for investors to draw money away from stocks, highlighting the resilience of equity markets even as borrowing costs jump.
US Treasury yields were slightly higher at the front end but about 1 to 3 bps lower in five- to 30-year maturities. The 10-year yield was at 5.22% and the 2s-10s curve flatter by about 3 bps at 42 bps at the mid, according to data supplied by LSEG.
The S&P 500 was trading 0.07% lower in the New York afternoon as chip stocks came under selling pressure while investors parsed a mixed bag of quarterly results, including those from big US banks.
WTI crude oil rose 0.6% while copper slid 0.26%.
Gold fell 0.21%.
Heading toward the close: EUR/USD +0.4%, USD/JPY -0.18%, GBP/USD +0.34%, AUD/USD +0.32%, DXY -0.38%, EUR/JPY +0.21%, GBP/JPY +0.16%, AUD/JPY +0.16%.(Robert Fullem)
