Interest rate outlook: 10YR Treasury hits 4.4% amid growing chance of no Fed cuts

Data current as of 4/8/2024

Key points

• 10YR Treasury yields hit 4.4%: (1:04)
• Fed Funds interest rate above 5.0%: (2:48)
• Fed Powell expected to cut rates in 2024: (3:46)
• Interest rate traders say 0.50-0.75% cut: (4:50)
• 2.8% chance of no interest rate cuts in 2024: (6:27)

10YR Treasury yields hit 4.4%

10-year Treasury yields have climbed to 4.4%, the highest point year-to-date, propelled by robust US economic data and hawkish rhetoric from Federal Reserve officials. This surge reflects investors' expectations for the US economy and the future of interest rates as potential rate cuts appear less likely.

Fed Funds interest rate above 5.0%

Following a rate hike in July 2023 to a range of 5.25-5.50%, the US Federal Reserve has maintained its Fed Funds interest rate at this level. This policy stance underscores the central bank's commitment to curbing inflation, directly affecting the forex market by enhancing the dollar's appeal to investors seeking higher yields.

Fed Powell expected to cut rates in 2024

Indications from the Federal Reserve's dot plot and recent affirmations by Chair Jerome Powell signal an anticipated reduction in interest rates by about 75 basis points in 2024. Such a policy shift could influence the forex market by potentially softening the dollar's value against other major currencies, as lower rates decrease its yield attractiveness.

Interest rate traders say 0.50-0.75% cut

Traders in the futures markets (CME FedWatch tool) are relatively aligned with the Federal Reserve, projecting 2-3 cuts of 0.25% to interest rates throughout the remainder of 2024. This expectation is softer than at the beginning of the year, when projections were closer to 6-7 25bps cuts.

2.8% chance of no interest rate cuts in 2024

Although there are great expectations for several rate cuts, there is a growing chance of no rate cuts at all. While such odds from the CME are only 2.8%, there was a 0% chance a few weeks ago. This scenario indicates a cautious outlook towards US economic growth and inflation, which forex traders monitor closely for its implications on currency trends.

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Trading forex requires an account with a forex broker like IG. Many traders watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

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