The US dollar traded in a narrow range on Wednesday as markets remained cautious ahead of key US economic data and further geopolitical developments that could shape the outlook for monetary policy.
The return to relative calm in the Middle East could modestly improve market sentiment, reducing immediate safe-haven demand.
Yields extended the previous session’s decline as investors remain optimistic that a diplomatic breakthrough could eventually lead to reopening the Strait of Hormuz and easing inflationary pressures tied to energy prices.
However, the downside for yields may remain limited if concerns about inflation stay elevated.
In this regard, Fed Neel Kashkari warned that the inflationary shock stemming from the Middle East conflict could persist, reinforcing the view that the Federal Reserve remains highly attentive to these risks.
Attention now shifts toward tomorrow’s PCE inflation and GDP releases, which could become major catalysts for both the dollar and Treasury yields. Stronger inflation combined with solid economic growth would likely reinforce the higher-for-longer narrative, while softer readings could weigh on yields and push the dollar lower.
Leave a Comment