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US Dollar Soars on Hawkish Powell Booting Bonds Lower as Yields Rise. Where to for USD?

US Dollar Soars on Hawkish Powell Booting Bonds Lower as Yields Rise. Where to for USD?

Daniel McCarthy, Strategist

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US Dollar, DXY, Treasuries, Fed, Powell, FOMC, NZD, JPY, BoJ - Talking Points

  • The US Dollar has gained on the back of Powell’s comments
  • US interest rates are higher across all tenors as 0.50% hikes arrive
  • Risk assets were the biggest losers on USD strength. Will itcontinue higher?
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The US Dollar has soared after Federal Reserve Chair Jerome Powell rattled markets with his hawkish rhetoric.

The entire US Treasury curve sold off aggressively, with yields ticking up. The very short end of the curve is now pricing in three 50 basis point hikes at the Federal Open Market Committee (FOMC) meetingsin May, June and July.

Powell said, “I would say that 50 basis points will be on the table for the May meeting.”

He also inferred that further 50 basis point hikes could happen, but that this would be considered meeting by meeting. He also talked about the merits of front-loading such rate rises. The benchmark 10-year Treasury note is inching toward 3%.

With interest rates rising, risk assets sold off everywhere in the rush to US Dollars. The New Zealand Dollar led the charge lower, with the Aussie hot on its heels.

The Japanese Yen has had relatively quiet day as speculation about coordinated intervention in USD/JPY circulated. Such action last occurred in 2011.

As previously announced, the Bank of Japan (BoJ) stepped in to buy JGBs in the 5 to 10-year part of the curve. It’s been reported that a number of global funds are gearing up to challenge the BoJ via the swaps market.

Wall Street sold off in their cash session and futures markets are pointing toward a slightly negative start to their day ahead.

It was a sea of red across APAC indices, with the exception of China’s CSI 300 index. The Chinese regulator urged large institutions to buy Chinese stocks while they trade over 30% below last year’s peak. The Chinese Yuan has had its largest weekly loss since 2019.

Crude oil is lower on the strong USD and China growth concerns. Gold is also weaker on higher bond yields and the Greenback’s rally.

Looking ahead, it’s PMI Friday across Europe and North America today, while the UK and Canada will report retail sales data.

The full economic calendar can be viewed here.

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US Dollar Index (DXY) Technical Analysis

The US Dollar index made fresh 2-years highs this week. It appears to have some “clean air” before the March 2020 peak of 102.99, which may offer resistance.

It has potentially reclaimed short term bullish momentum after crossing back above the 10-day simple moving average (SMA).

Nearby support might lie at the recent lows of 99.82 and 99.57.

US Dollar Chart

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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