The United States narrowly avoided a government shutdown, which has alleviated one of the negative factors expected to impact the trading of the US dollar index, which is currently stabilizing around 106.62 points. This, in turn, is fueling new increases in US interest rates and helping support the strength of the dollar at the beginning of the new quarter.
The yields on 10-year Treasury bonds are still holding above 4.60%, approaching the highest level recorded last week (4.68%). The 2-year yield has widened the gap and is nearing 5.10%, approaching its highest level since September 21. It’s worth noting that the Swiss Franc is the only currency within the G10 group that is maintaining its strength against the dollar today.
With limited time available, the spending authorization for the US federal government has been extended until November 17. This extension did not provide new funding for Ukraine, as House Speaker McCarthy promised to introduce a separate bill for authorization, although there are moves within the Republican Party to replace it after relying on Democratic support to pass authorization bills.
On the other hand, other important factors are still facing the US economy, putting it under negative pressure. The expanding UAW strike and the Federal Reserve’s monetary policy continue to tighten. This, in turn, will put pressure on American consumers as well as lead to rising energy prices. Markets are eagerly awaiting this week’s data, including JOLTS and the non-farm payrolls report.
It is now believed that the markets have abandoned the idea of a Federal Reserve interest rate hike next month. The probability of a rate hike by the end of the year is around 40%, compared to about 50% three weeks ago. Nine Federal Reserve officials are set to speak this week, with Chair Powell and Harker participating in discussions on the US economic situation today. Most viewpoints appear to be well-known, with the overall statement being that interest rates are close to or at their peak and will remain high for some time. Meanwhile, the US Treasury will sell $244 billion in bonds this week, which could create some price volatility.
The risk now lies in the possibility that the dollar’s downward correction has ended, and it may once again head towards new highs amid the prevailing risk-off sentiment in the markets. The dollar has risen by approximately 5% until mid-last week. Many fundamental and technical signals suggest the potential for the US dollar index to reach new highs, negatively impacting gold prices and dollar-denominated foreign currencies.
