US dollar future depends on the Fed’s actions and interest rates. Next week, the FOMC’s monetary policy gathering will command attention.
US dollar affected by lowering bond yields
The 2-year yield has dropped to just under 4%, from a multi-decade high of just over 5%, reached on March 8. Although this is significantly greater than the level of less than 0.2% observed at the covid era lows. Its recent change is still notable.
| Bonds | Yield | Day | Month | Year | Date | |
| US 10Y | 3.40 | -0.145% | -0.412% | 1.290% | Mar/17 | |
| US 4W | 4.01 | -0.163% | -0.646% | 3.732% | Mar/17 | |
| US 8W | 4.44 | -0.178% | -0.329% | 4.110% | Mar/17 | |
| US 3M | 4.46 | -0.259% | -0.365% | 4.036% | Mar/17 | |
| US 6M | 4.75 | -0.201% | -0.358% | 3.894% | Mar/17 | |
| US 52W | 4.31 | -0.209% | -0.748% | 3.059% | Mar/17 | |
| US 2Y | 3.85 | -0.284% | -0.812% | 1.904% | Mar/17 |
TRADINGECONOMICS.COM
US dollar bets on lower rates hikes
After the failure of two mid-sized U.S. regional banks stoked concerns about a financial Apocalypse. This forced the Fed to take emergency action to support depository institutions with liquidity problems. Bets on prospects for monetary policy changed in a dovish way.
Despite Jerome Powell’s hawkish speech to Congress, the table below shows how much Treasury yields and Fed terminal rate forecasts have dropped since last Wed. It also demonstrates how the dollar’s decline has coincided with that of those commodities.
IMPLIED YIELD FOR FED FUNDS FUTURES FOR 2023
Source: TradingView
Given recent events, the path of least resistance for the U.S. dollar is likely to be lower. Since the current situation doesn’t get out of hand and trigger a major financial crisis. That would benefit defensive currencies.
After the Fed releases its March policy decision on Wed, traders will have more information with which to evaluate the future of the dollar. Although forecasts have fluctuated. Market pricing now favors an interest rate increase of one-quarter point, which would increase borrowing costs to 4.75%–5.00%. The highest rate since 2007.
However, there is still a possibility of a “pause” and it shouldn’t be entirely thrown out because a lot could occur between now and Wed.
Recent events have demonstrated that negative news can appear out of nowhere and without warning. Nevertheless, any new financial strain might prompt officials to proceed carefully and take a “just wait and see” stance.
Anything the Fed chooses to carry out next week, everything is in place for dovish guidance. The FOMC is likely to stress the significance of maintaining financial stability and its preparedness to take action. Stop the development of systemic risks. The ramifications of this message might cause the US currency to decline even more.
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