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Past Week Saw Yield Spike Weakening The Dollar

The week spanning October 16 to 20 saw the U.S. Dollar rebound fizzle as bond yields surged to levels last seen in 2007. Despite safe haven bids triggered by the growing geopolitical tensions in the Middle East as well as Fed Chair Jerome Powell’s remarks on high inflation, the Dollar Index shed close to half a percent during the week. The U.S. Dollar weakened against the euro, the British pound and the Australian Dollar but held ground against the Japanese Yen.

The Dollar Index or DXY, a measure of the Dollar’s strength against a basket of 6 currencies dropped 0.46 percent during the week ended October 20. The DXY which had closed the week ended October 13 at 106.65, declined to 106.16 by October 20. The index touched its weekly high of 106.67 as well as its weekly low of 105.97 on Thursday.

Fed Chair Jerome Powell had on Thursday lamented the inflation that was too high and warned that bringing it down to the Fed’s target level would likely require a slower-growing economy and job market. Yet he stopped short of suggesting a rate hike in the ensuing review, causing the Dollar to retreat, dragging down the Dollar Index from the level recorded at the previous week’s closing.

U.S. ten-year bond yields increased to 4.914 percent, from 4.616 percent a week earlier after touching a high of 4.996 percent on Thursday. The spike in bond yields came amidst growing fears that a resilient economy would require the Fed to keep interest rates restrictive for longer than feared. The hardening in bond yields however obviated the need for further tightening by the Fed, weakening the Dollar.

Gold prices typically move inversely to the Dollar and the Dollar’s weakness coincided with a surge in the prices of the yellow metal, which moved from $1,941.50 on October 13 to $1,994.40 on October 20. During the past week, the euro rallied 0.80 percent against the U.S. Dollar amidst the Fed Chair’s comments that have been largely interpreted as dovish. The EUR/USD pair which had close on October 13 at 1.0509, opened on Monday at 1.0507, its weekly low and increased steadily to touch a high of 1.0618 by Thursday. It weakened and closed a tad lower at 1.0593 by the close of the week ended October 20.

The GBP/USD pair too edged up during the week ended October 13. From the level of 1.2141 on October 13, the pair increased to the high of 1.2220 on Monday, before weakening to 1.209 on Thursday. The pound recovered and closed the week ended October 20 at $1.216, edging up 0.16 percent on a weekly basis. Data released on Wednesday had shown inflation in the U.K. remaining steady at 6.7 percent in September, whereas markets had expected it to fall to 6.6 percent. However, uncertainty regarding the Bank of England’s monetary policy trajectory lingers amid retail sales in the U.K. declining 0.9 percent month-over-month in September, reversing from a 0.4 percent increase in August and market forecasts of a 0.2 percent fall.

Minutes of the meeting of Reserve Bank of Australia that showed low tolerance for high inflation as well as strong data from China that showed higher-than-expected readings in GDP growth, Industrial Production and Retail Sales helped the Australian Dollar make strong gains against the U.S. Dollar during the week ended October 20. The AUD/USD pair increased 0.33 percent during the week, rising from 0.6291 on October 13 to 0.6312 on October 20. The pair touched the weekly low of 0.6294 on Monday before the hawkish tone in the RBA minutes and the strong Chinese data released on Tuesday helped the Aussie to rise to the week’s high of 0.6395 against the U.S. Dollar on Wednesday.

The week ended October 20 witnessed the USD/JPY pair breach the psychological level of 150. The Dollar rallied 0.19 percent against the yen, causing the USD/JPY pair to rise to 149.84, from 149.55 a week earlier. The week’s high of 150.05 was touched on Friday whereas the week’s low of 149.23 was recorded on Tuesday. Data released during the week had shown the annual inflation rate in Japan falling to 3.0 percent in September, from 3.2 percent in the prior month which turned out to be the lowest reading since September 2022.

Third quarter inflation readings from Australia are expected later in the day. Fed Chair Jerome Powell’s comments on Wednesday would also be keenly anticipated ahead of the review on November 1. The European Central Bank’s next interest rate decision is due on Thursday. Advance estimates of Third quarter GDP and PCE-based inflation readings from the U.S. are due towards the end of the week. The Bank of Japan’s next interest rate decision would be pronounced on Monday. Amidst the major events lined up, the Dollar Index has edged down to 106.06. The EUR/USD pair rallied to 1.0609 whereas the GBP/USD pair has moved up to 1.2187. The AUD/USD pair is hovering close to the 0.636 level. The USD/JPY pair is steady near the 149.8 level.

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