US Dollar Hits Three-Month High Amid Strong Treasury Yields

The financial markets witnessed significant movement in the US dollar this week. The dollar index reached its highest level in over three months, driven by a strong rise in treasury yields. Although recent PCE inflation data suggested reduced expectations for another Federal Reserve (Fed) rate hike, the bond market trend appears to be diverging from these forecasts. Ten-year treasury yields hit their highest level since 2002, reaching 5.34% during the session before stabilizing at 5.29%. This strong movement in the bond market can primarily be attributed to the expectation that long-term yields will continue to rise regardless of inflation expectations. The EUR/USD pair also reflects this trend, dropping below the psychological level of 1.1300 and threatening to break a key support cluster established over the past months. The area between 1.1350 and 1.1400 has played a crucial role in holding off sellers until now, but falling below that region also risks confirming the downward trend that hit the June low of 2023. If buyers cannot maintain a weekly close above the 100-week moving average, this will reinforce the fall below the 1.1300 mark at the start of October trading. The next significant level to watch is the psychological level of 1.1200, followed by the 200-week moving average around 1.1094 and the psychological mark of 1.1000. This movement reflects a shift in the global economic scenario where the Fed seeks a balance between inflation and growth, while financial markets seem more sensitive to treasury yields than recent inflation readings. Source: ForexLive (InvestingLive)