Dollar Gains Ground Amid Weak Stocks and Rising Bond Yields
The U.S. dollar index is up slightly as weak stock markets increase demand for dollar liquidity. Additionally, rising Treasury note yields are strengthening the dollar's interest rate differentials, with the 10-year T-note yield hitting a 1.5-year high of 4.75%. Inflation expectations have also risen due to WTI crude oil reaching a three-week high. The euro is slightly higher after Germany’s ZEW economic growth survey exceeded expectations and European bond yields climbed, but the dollar's strength limits gains in the euro. Meanwhile, the yen fell against the dollar as rising energy prices weigh on Japan's economy and interest rate differentials remain weak compared to U.S. rates. Markets are pricing a 35% chance of a Fed rate hike at its September meeting and an 80% probability for a BOJ rate increase in late September, reflecting expectations that central banks will continue tightening monetary policy.
Topics: bond yields dollar inflation expectations stock weakness