US dollar, Treasury yields rise after Fed Chair Powell speech
After Fed Chair Powell highlighted ongoing inflation concerns, the US dollar and Treasury yields surged, signaling diminished hopes for significant rate cuts in 2024. Learn more about how markets reacted.
Key points
- Fed Chair Powell spoke at policy forum in Washington
- US inflation rate sticky above 2% target
- Interest rate cuts less likely in 2024
- 2YR Treasury yield nears 5.0%
- US dollar surging on higher interest rates
Fed Chair Powell spoke at policy forum in Washington
During a recent policy forum in Washington, Federal Reserve Chair Jerome Powell addressed the continuing issue of high inflation, emphasizing the "lack of further progress" towards the Fed's 2% inflation target. Regarding potential interest rate cuts, he remarked needing "greater confidence that inflation is moving sustainably toward 2% before it'd be appropriate to ease policy." This statement raises concerns about the expected cuts in 2024, hinting that it could be several months before a rate cut.
US inflation rate sticky above 2% target
Both the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) inflation measures remain above the Federal Open Market Committee's (FOMC) 2% inflation goal. While inflation appeared to be lowering steadily at the end of 2023, 2024 figures have shown a resilience, with CPI rising in March. This persistence underscores the challenge the Fed faces in reining in inflation, affecting forex market expectations about interest rates and currency strength.
Interest rate cuts less likely in 2024
The probability of the Federal Reserve making one or no 25 basis points cuts (calculated by the CME FedWatch tool) to the current 5.5% Fed Funds interest rate hovers near 50%. This diminished likelihood of significant rate cuts next year could impact forex trading strategies, particularly those based on interest rate differentials in USD.
2YR Treasury yield nears 5.0%
Yields on 2-Year US Treasury notes are approaching the 5.0% mark, nearing the multi-year highs observed in October 2024. The rising yields in Treasury futures markets signal expectations of sustained high interest rates, influencing the forex market by bolstering the US dollar's appeal.
US dollar surging on higher interest rates
The US dollar has climbed to new heights since 1990 against the Japanese yen above 154.00, while the EUR/USD, GBP/USD, and AUD/USD pairs have trended lower. This surge reflects the impact of higher US interest rates on the forex market, enhancing the dollar's attractiveness against a basket of major currencies.
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
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.
You can help develop your forex trading strategies using resources like IG’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. See our Summary Conflicts Policy, available on our website.
Live prices on the most popular forex markets
See more forex live prices
Prices above are subject to our website terms and agreements. Prices are indicative only
