The greenback slides alongside Treasury yields on dovish Fed overnight
The big story of the day remains the dollar as it falls with Treasury yields after the Fed turned more dovish in yesterday's policy meeting. US 10-year yields fell below 2% to its lowest since November 2016 and the lingering softness from the Fed overnight is weighing on the greenback as well this morning.
That said, the Fed's move kick started the race for global central banks to be increasingly more dovish so that could come back to aid the dollar in time. The fact that markets have also priced in a full 25 bps rate cut for July, 50 bps rate cut by October, and 75 bps rate cut by March 2020 could mean limited scope for dollar weakness from hereon.
But we'll see what the market chooses to focus on and the results from the Trump-Xi meeting next week could make or break pricing for a 50 bps rate cut by the Fed in July - something which markets are keenly focusing on this morning too.
The aussie is also a little lagging behind the rest of the major bloc as RBA governor Philip Lowe suggested more rate cuts are to come and that helped to increase odds of one in the upcoming July meeting. Market probability for that went up from 50% before Lowe spoke to roughly just above 70% currently.
With all the dovish talk from central banks and falling global bond yields, gold remains the standout performer as the commodity searches for a multi-year break to start the day. Gold now trades at its highest levels since 2014 at around $1,381.
Looking ahead, expect European markets to maintain their focus on the Fed and the dollar but as mentioned above, things may not seem all that bad for the greenback given how pessimistic markets have been coming into yesterday's FOMC meeting.
Unless we're starting to talk more about a 50 bps rate cut by the Fed in July, I still have that inkling at the back of my mind saying that the dollar's downfall may not be as bad as feared for the time being. I mean if the Fed is growing dovish, can you imagine how much more dovish other central banks will have to be to keep up?
But we'll see. Right now, the focus is still all on the dollar and a more dovish Fed. Looks like Trump got his wish after all.
