Huitong Network News - The US dollar index was stable on March 25, after falling 0.4% earlier, and rising 0.56% this week, the sixth weekly rise in the past seven weeks; the yield on the US 10-year Treasury bond soared 11 points Basis points to 2.48%, with a growing number of Wall Street banks expecting the Fed to raise interest rates more than policymakers expected, with Citi economists expecting the Fed to raise interest rates by 50 basis points four times in a row as inflation continues to rise.
The U.S. dollar index was steady at 98.79 on Friday (March 25) in moderate trade and oil-sensitive currencies strengthened after reports of a fire at a Saudi Aramco oil facility. Unwinding ahead of the weekend helped the yen pared its losses for the week.
The U.S. dollar benefited from its status as a safe-haven asset and the conflict in Ukraine boosted expectations that the Federal Reserve will raise interest rates. The war in Ukraine and the ensuing rise in commodity prices have added upward pressure to already high inflation.
Edward Moya, senior market analyst at Oanda, said one thing everyone can agree on is that inflation will last longer, and a lot of it will be sticky, which will complicate the eventual actions of central banks. You could see the dollar lead with rate hikes, Europe will lag, and that spread should provide some support for the dollar.
Bank of America called on the Fed to raise interest rates more aggressively. A small number of investment banks have made the same call before, and the number is growing. Bank of America now expects the Fed to raise rates by 50 basis points at both its June and July meetings, and the "risk" to these expectations is that the Fed may raise rates by 50 basis points each in May and June ahead of schedule.
Citi now expects the Fed to raise rates by 50 basis points at each of its May, June, July and September meetings. The bank also expects to raise rates by 25 basis points in October and December.
Economic data showed that rising prices and interest rates were beginning to dampen some economic activity. Existing home purchase contracts signed in the U.S. fell to the lowest in nearly two years in February. Consumer confidence fell in March as gasoline prices surged to record highs in the wake of the Russian-Ukrainian war, raising one-year inflation expectations to their highest level since 1981.
EURUSD _It fell 0.1% to $1.0984, driven by selling at the London fixing, although speculation was relatively muted; European bond yields fell after Germany's IFO index weakened and the US and EU also announced a gas supply agreement; It was down about 0.5% for the week. Implied volatility is broadly lower; large options with a strike price of $1.10 are expected to expire next week. EUR/ CHF dipped below the 1.02 level for the first time since March 14 before recovering to 1.0235.
USD/JPY fell nearly 1% to 121.17 at one point, before rebounding to 122.08 in late trade, snapping a five-day winning streak; however, the pair was still up 2.46% for the week. Although bond yields rose to their highest levels since January 2016, sparking speculation that the BOJ would offer unlimited bond purchases at fixed rates, the BOJ did not intervene.
Sterling was last at $ 1.3182 against the dollar, down 0.02% on the day. USD/ CAD fell as much as 0.5% to a two-month low of 1.2464 on higher crude oil prices and higher real yields on Canadian government bonds; the Canadian dollar gained more than 1% for the week.
The Norwegian crown, the best-performing G10 currency this week, was down 1.6 percent against the dollar this week after the country's central bank announced a rate hike on Thursday.
Looking Ahead Monday
19:00 Bank of England Governor Bailey speaks on the economy
Goldman Sachs expects Fed to raise interest rates by 50 basis points in May and June, and raises U.S. bond yield forecast
Goldman Sachs Group Inc. said it now expects the Fed to raise interest rates by 0.5 percentage points each at its May and June meetings to combat soaring inflation, and the bank raised its forecast for U.S. Treasury yields across the board. The bank now expects short-term yields to rise faster than long-term yields, inverting the yield curve by about 20 basis points. The agency expects the 2-year Treasury yield to rise to 2.9% by the end of this year and 3.15% by the end of 2023. Its forecast for the 10-year U.S. Treasury yield at the end of 2022 was revised up to 2.7% from 2.25% previously. It comes after a series of Fed officials said they were willing to raise rates by half a percentage point at a time if necessary, a move the central bank has not done since 2000.
An inverted yield curve is often seen as a warning sign of a recession. But Goldman said that while the risk of an economic slowdown has increased, a mildly inverted curve is less predictive of a recession, especially in a high-inflation environment like today. In the 1970s and early 1980s, before the recession, the yield curve inversion was more severe then, the report said.
We forecast a slight inversion of the 2s10s yield curve by the end of the year, however, nominal curves tend to be more prone to inversions in high inflation environments, and earlier or deeper inversions may be seen during the cycle, the report said. Goldman Sachs predicts that the Fed's benchmark interest rate will eventually reach 3.00%-3.25% in this round of interest rate hike cycle, while the market's expectation for the final interest rate is 2.50%-2.75%.
Citi sharply raises rate hike forecast, sees a 50 basis point increase at each of the next four Fed meetings
Citi economists have raised their forecasts for the Fed to raise interest rates this year, and now expect a 2.75 percentage point rate hike if inflation persists, including four consecutive 50-basis-point rate hikes; in addition, analysts such as Andrew Hollenhorst said in the report The Fed is expected to continue raising interest rates until 2023, with the benchmark rate rising to a range of 3.5%-3.75%, well above the median forecast of 2.8% in the Fed's dot plot released last week. Citi economists said there was room for policy rates to rise given upside risks to inflation.
Fed forecasts show policymakers expect to raise rates by 25 basis points at each of the remaining six meetings this year. Citi's previous forecast was for a total of 2 percentage point rate hikes in 2022. While Citi economists expect 50 basis points of rate hikes at each of the next four meetings and 25 basis points at each of the October and December meetings, if inflation remains above 5%, the last two A rate hike of 50 basis points is also possible at the meeting. In addition, analysts said the Fed could also raise rates by 75 basis points in one go if inflation unexpectedly accelerates or if long-term inflation expectations rise rapidly, such as the University of Michigan's consumer confidence survey shows that prices are expected to rise more than 3.5%.