US Yield Curve Flatten as Dollar Consolidates

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The US dollar hit a consolidation note early on Monday’s trading as it got to a one year and a half high at the close of trading on Friday when the Treasury yield curve stretched to a three-week flattening sequence after hawkish statements from Federal Reserve officials.

Although the Federal Reserve had made it clear that it plans to increase interest rates in March after its two-day monetary policy meeting last week. Major players in the financial market and Wall Street sharks are currently expecting that there will be up to five interest rate increases before the end of the year.

In the same manner, sore investors still think policymakers are getting set to implement a more rapid interest rate increase in quick succession this year so they could put the burgeoning inflation to check following data suggesting its uncontrolled growth.

According to Atlanta Federal Reserve President Raphael Bostic, if the inflation rate is obstinately high, the Federal Reserve can increase an interest rate to half a percentage point.

In reaction to Bostic’s statements, a financial strategist with Societe Generale, Kenneth Broux, said that Bostic is not an FOMC voter, so he would not take Bostic’s statements too seriously, but one could say he is testing the waters in the market.

He said that the argument over whether it should be 25 or 50 basis points by March gives a hint as to why the US dollar is expected to continue doing well in the market while stocks may continue to be shaky in the meantime.

Markets Elsewhere

Against some other fiat currencies, the dollar dipped by 0.2% to the point of 97.02 after a rise to the mid-2020 height of 97.44 on Friday. The dollar’s rise to 1.6% in the outgone week was its best weekly increase since mid-2021. The longest dispensation of high dollar positions is being observed closely this year.

Australia’s dollar (AUD) happens to be one of the fastest-rising fiat currencies against the unstable USD during Monday’s trading as the AUD gained more than 0.5% at $0.7043 ahead of the central bank’s monetary policy meeting scheduled to hold on Tuesday.

The monetary policy meeting of the Bank of England is also scheduled to hold on Thursday. 

While expecting the Bank of England’s meeting and its resolutions, Reuters carried out a survey to get the opinions of financial analysts and economists, and it was concluded that their popular prediction was that there might be yet another interest rate increase, making it the second in just over a month, as the bank rescinds on some of its COVID-19 stimulus packages as inflation has grown to a 30 year high.

Likewise, the policy meeting of the European Central Bank (ECB) is also scheduled to take place on Thursday, with financial analysts calling caution that the expected interest rate increase from the US Federal Reserve might reduce the ECB’s opportunity to have a concrete reaction to the market effects.

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