The US Dollar held firm, reaching a multi-year high, as the monetary policy outlook remained hawkish.
The Federal Reserve is anticipated to raise interest rates twice this year. The expected tightening could continue to fuel the dollar’s strength and could leave bond yields elevated.
Treasury yields could continue to advance in this regard. The 2-year yields edged toward last year’s high, while the 10-year yields remained slightly below this year’s peak.
Strong economic data supported rate-hike expectations, yields, and the dollar. The Manufacturing PMI rose to 55.7 in June, its highest level since May 2022.
The Services PMI printed at 51.3, ticking up from May’s 50.7 and clearing consensus estimates. The ADP Employment Change also improved, supporting the view that the US labour market remains firm enough to keep the Fed cautious.
The PCE data will take centre stage later on Thursday. A strong print could cement the expectations for a September hike, while a surprise softening could cap the rally. Additionally, the developments in the US-Iran talks could continue to affect safe-haven demand and the US currency.
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