Dollar Strengthens Amid Rising U.S. Bond Yields and Prolonged Interest Rate Expectations

Dollar Strengthens Amid Rising U.S. Bond Yields and Prolonged Interest Rate Expectations
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The dollar witnessed a clear increase at the start of the new weekly trading, supported by several developments. Among the most notable factors is the market's anticipation of the release of U.S. inflation data this week, alongside reinforced expectations regarding the prolonged high U.S. interest rates.

Here are the key factors affecting the dollar's movements:

The Rise in U.S. Bond Yields Supports Dollar Strength

The U.S. dollar clearly benefited from the rise in U.S. bond yields across various maturities, with the yield on 10-year U.S. bonds rising by 0.29% to around 4.788%. The yield on 20-year U.S. bonds also increased by 0.08%, reaching approximately 5.041%. Additionally, the yield on 30-year U.S. bonds rose by 0.08%, reaching levels of 4.968%. This increase in the yields of different U.S. bonds played a significant role in supporting the dollar index.

The Dollar Benefits from Strengthened Expectations for U.S. Interest Rates

U.S. employment data for December significantly influenced future interest rate expectations, which bolstered the strength of the dollar index. The data indicated a continued strong labor market in the U.S. for December. This robust growth in the labor market acts as a positive indicator of the resilience of the U.S. economy and its ability to adapt to a high interest rate environment.

Following the release of this data, U.S. interest rate expectations underwent notable shifts. The FedWatch tool showed a significant increase in expectations for the Federal Reserve to keep interest rates unchanged at 4.50%. These expectations rose to about 97.3%, while the expectations for a 25-basis point rate cut decreased to around 2.7%, further enhancing the dollar's strength.

The Dollar Awaits U.S. Inflation Data Release

Moreover, the dollar index is awaiting the release of inflation data this week, which could have a strong and clear impact on trading, especially since this data typically has a significant effect on the monetary policy decisions of the U.S. Federal Reserve.

Impact of These Factors on the Dollar Index

The U.S. dollar index rose by 0.40% to reach 110.04 points (its highest level since November 2022). However, investors remain on alert and awaiting the outcome of the U.S. inflation data, as these figures are expected to significantly influence the dollar's movements in the coming period.

Read Also:

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The dollar strengthens before highly important data, while weakness strikes the pound

For traders: The most significant factors influencing gold and dollar markets this week


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