The U.S. dollar strengthened as markets priced a steeper Federal Reserve path, a shift that lifted near-term Treasury yields and pressured lower-yielding currencies, ING analyst Chris Turner said.
In a Nov. 13 analysis, Turner said markets anticipated rate increases at both the December and January Fed meetings. He put the full expected adjustment from then-current levels at 85 basis points; the report did not allocate that total between the two meetings. He also said short-dated U.S. yields had climbed nearly 40 basis points since Tuesday morning.
U.S. Treasury daily data show the two-year par yield at 4.73% on Nov. 10 and 4.88% on Nov. 13, a 15-basis-point rise between those observations. That is a different comparison from Turner's nearly 40-basis-point reading, which used an unspecified short-term yield measure and began Tuesday morning.
The inflation releases offered fresh context for the rate debate. The U.S. Bureau of Labor Statistics (BLS) said consumer prices rose 0.4% in October from September, seasonally adjusted, while prices excluding food and energy climbed 0.3%. Final-demand producer prices rose 0.3% for the month, seasonally adjusted, and 6.5% over the 12 months through October, unadjusted. BLS said the annual increase was the largest since a 7.4% rise in November 2022.
On Nov. 10, before the October consumer price report, Federal Reserve Governor Christopher J. Waller said he leaned toward a 25-basis-point December increase if inflation improved as expected. He said a 50-basis-point increase should be considered if October core CPI was around 0.3% or higher. Waller said his position was his own and did not necessarily represent the Federal Reserve Board or Federal Open Market Committee (FOMC).
Turner said the dollar's strength was putting pressure on the Swiss franc and yen, and identified the Swedish krona as vulnerable. The rate outlook follows an earlier ING warning that easing risk aversion could leave the dollar exposed to a pullback, as EconoTimes previously reported.
The Bureau of Economic Analysis (BEA) is scheduled to release October personal income and outlays, including the Personal Consumption Expenditures price index, on Nov. 25 at 8:30 a.m. ET. The FOMC's next meeting is set for Dec. 8-9.
