Forex Market Majors Trade Higher on US Dollar Weakness

  • EUR and GBP Both Strengthen as US Yields Dip
  • China Relations Key to USD Strength
  • Markets Calm Following Fed & Bank Support

Following a rollercoaster Thursday in the bond market, the US Dollar has weakened on the back of a dipping 10-year treasury yield that had spiked to new highs during the day. The forex market major currencies, both Pound and Euro managing to get back to some strength as traders stayed away from the Dollar. Following a tense opening to US-China talks, this could be the next key issue to determine the strength of the currency in the near-term. Meanwhile, market stability has returned following strong support from the Fed in view of inflation and rate hike concerns.

Majors Strengthen on Dropping 10-Year Yield

The 10-year US Treasury yield endured a chaotic day on Thursday spiking to a high of 1.75% which is the highest point it has reached in more than 12 months. The main contributing factor to this would appear to be the bond market reaction to news that the Federal Reserve will allow inflation to run hot as the economy continues to get back to work. There will be no change in the 2% target for inflation according to Jerome Powell.

This news pushed yields much higher, though they have since reverted to below 1.7%. This movement downward has seen support in forex trading away from the Greenback as traders continue to show confidence in the market. The Fed stance that there will be no interest rate hikes until at least 2023 and beyond has also seen traders return to more risk-on movements overtaking earlier caution.

US-China Relations in Difficult Territory

Meanwhile, one of the key drivers of strength in the USD has very much returned to the table this week. The relationship between the US and China under the Biden administration got off to a stormy start at their first high-level talks in Alaska with both sides exchanging strong accusations and rhetoric.

Such undiplomatic language as was used during the talks is rare but can certainly provide provocation on both sides with forex brokers positioned to see any uncertainty of economic difficulty caused by a fallout result in a stronger US Dollar. This is due to the safe-haven nature of the currency and the importance of the relations between these two economic powerhouses.

Wall Street Calm Returns with Fed Support

The stock market too had been waiting tensely to hear the Fed approach to the economy moving forward with inflation and rate hike concerns at the forefront of many minds. These concerns seem to have been soothed by the extremely supportive message communicated by Fed Chair Jerome Powell.

A sell-off in some tech names that had been prompted by the rising 10-year yield seems to have been abated with pre-market trading looking broadly positive and settled in all major indices. Still, the NASDAQ remains down close to 1.5% for the week but seems like ending at a strong pace.

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