Dollar falls with treasury yields as Fed bets grow: markets wrap

The US currency fell for a fifth day as it weakened against all its G10 peers and most emerging-market counterparts in Asia. The New Zealand dollar rallied after the country’s central bank signalled there’s an increased risk it could hike again next year.

“Attention will now move to chair Powell’s speech on Friday to see if the tone points to a clear pivot towards easing,” Daragh Maher, head of FX strategy for the US at HSBC, wrote in a note. “If it materialises, this would clearly be a challenge to our bullish US dollar view.”

The Bloomberg Global Aggregate bond index is up 4.9% in November and on course for its best month since December 2008, after recent data indicated slowing inflation and weaker economic activity. Also driving the greenback’s declines is Fed officials’ latest dovish rhetoric and billionaire investor Bill Ackman’s comment that the US central bank could begin cutting rates sooner than predicted.

The MSCI All Country World Index of stocks has gained 8.8% so far this month, its most since November 2020. 

Stocks in Asia were mixed, with increases in Australia after cooling inflation bolstered the case for the local central bank to resume pausing interest rates next week. Japanese shares fell, as the yen’s strengthening to more than 2-month high weighed on exporters. Equities fell in Hong Kong and mainland China.

Futures for US stocks were steady. 

The kiwi dollar rallied about 1% against the greenback after the Reserve Bank of New Zealand’s new policy rate forecasts show a slightly higher track 2024, implying a chance of an increase, and no reduction until mid-2025. The central bank kept interest rates unchanged for a fourth straight meeting on Wednesday. 

Emerging Asian currencies also jumped, led by the Thai baht and Taiwanese dollar. 

Fed swaps are anticipating over 100 basis points of rate cuts by the end of 2024 after governor Christopher Waller said the bank is well positioned to push inflation to a 2% target. 

Two-year Treasury yields dropped another three basis points to 4.71% after shedding 15 basis points Tuesday while a Bloomberg gauge of the dollar fell to its lowest since August and is on track for its worst month in a year.

“The latest round of dovish Fed comments, which open the door to rate cuts in 2024, follows cautious comments from Fed officials in early October, which we noted as the start of the pivot,” said Tony Sycamore, a market analyst at IG Australia Pty. “In my thirty years in markets, I have not seen a central bank come close to executing such a well-timed pivot, punctuated by a patch of softer inflation and labour market data.”

In a speech entitled “Something appears to be giving,” governor Waller — one of the most-hawkish officials — said he’s “increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%.” While acknowledging the many uncertainties, his colleague Michelle Bowman refrained from telegraphing an imminent hike.

Elsewhere, oil advanced for a second day as traders counted down to a high-stakes OPEC+ meeting on supply. Gold extended gains to its highest level since May, also buoyed by hopes of a Fed policy shift. 

On the economic front, US consumer confidence rose for the first time in four months in November, aided by more optimistic views about the outlook for the labour market. Home prices hit a fresh record high, according to seasonally adjusted data from S&P CoreLogic Case-Shiller.

In the corporate universe, Meituan shares tumbled the most in more than a year after the Chinese company warned that growth in its main meal delivery business would slow this quarter and spending on promotions rise. PDD surged 18% after reporting a stronger-than-anticipated doubling in revenue, as hit shopping app Temu ramped up discounts and marketing to grab consumers from Shein and Amazon.com Inc.