The US 10-year yield declined to 4.93%, influenced by a decrease in crude prices that alleviated ongoing concerns regarding inflation. Crude prices experienced a decline as a result of Saudi pipeline restoration initiatives and the impending meetings between US and Gulf leaders. Fed Chair Warsh cautioned that inflation continues to be elevated, leading to an increase in October rate hike expectations to 53.1%. The USD/CHF pair continues to decline for the second day in a row, trading at 0.8230 on Friday. The pair depreciates as the US Dollar faced challenges from falling oil prices, which helped ease broader inflation concerns.
Easing inflation concerns have led to a decline in US Treasury yields from their recent multi-year highs, with the benchmark 10-year yield decreasing to approximately 4.93% after briefly surpassing the 5.0% threshold earlier in the week. Crude prices experienced a decline in response to reports indicating that Saudi Arabia was making efforts to restore operations through its East-West pipeline. Concurrently, market focus shifted toward the impending meetings between US President Donald Trump and leaders from the Gulf region. However, downside pressure on the Greenback could be restrained following hawkish remarks from Fed Chair Kevin Warsh. Warsh noted that inflation has persisted at elevated levels for an extended period and highlighted that the recent economic data from summer did not indicate significant structural improvement.
In the aftermath of his remarks, market anticipations shifted swiftly; the CME FedWatch tool revealed that traders are currently factoring in a 53.1% likelihood of an additional rate increase at the Federal Reserve’s October meeting, an increase from 44% the day before. Strategists note that the latest leg higher in USD/CHF has unfolded broadly in line with their earlier guidance. In their “most recent narrative from Tuesday (15 Sep, spot at 0.8175),” they had highlighted that USD “must break and hold above 0.8205 before a move to 0.8245 can be expected.” The pair subsequently “broke above both levels as it surged to 0.8265,” confirming the strength of the near-term upswing.
UOB cautions, however, that “while momentum remains strong, it is too early to tell whether it is sufficient for USD to break above 0.8300.” On the downside, they point out that “a breach of 0.8185 (‘strong support’ level was at 0.8145 yesterday) would mean that the upside momentum from late last week … is easing,” suggesting that any failure to hold above that support would signal a loss of bullish impetus in the 1-3 week horizon.
