Yields at a 19-year high and a dollar that beat every major
The US ten-year yield hit a 19-year high and the dollar rose against all seven majors in our feed. So why did it reach the top half of our strength table only once?
Last week's note closed on a test: could the dollar reach the top half of our currency-strength table on any session? If it did, the market had started trading the Federal Reserve's path rather than the headlines around it.
It did, once. On Tuesday the dollar finished fourth of eight, and in the other four sessions it was seventh or eighth. Yet this was the week the market repriced the Fed's path: the ten-year Treasury yield set a new 19-year high, and the dollar finished the week higher against all seven other majors in our price feed. Both things are true, and the gap between them is the useful part of this week.
Growth data, Fed speakers and a 19-year high
The move started in the bond market. Danske Bank's weekly note has the US ten-year yield rising from 4.95% on Monday to a weekly high of more than 5.20% on Thursday, and puts it down to positive growth surprises and higher oil rather than worries about debt.
The growth surprise came on Wednesday. S&P Global's flash PMIs for September came in at 57.0 for manufacturing and 58.7 for services, both well above forecasts, lifting the composite to 58.4. The same afternoon Governor Barr said the Fed had been "out of position" and would likely need to raise rates further, and the ten-year reached its highest since July 2007.
Thursday added the pricing. Action Forex put the odds of an October hike at 77.5%, from roughly 53% a day earlier, and New York Fed President Williams called another increase this year "reasonable" without committing to October. The 30-year yield ended that session at its highest since 2004 and kept rising on Friday, while the ten-year held at 5.20%, just off its peak of 5.228%.
The Dollar Index followed the yields up: around 100.30 on Monday, 101.40 on Thursday, its highest since late July and on course for a fourth straight gain. On Friday the dollar paused, weaker against six of the seven majors according to Action Forex, but still on track for its first back-to-back weekly gain in more than three months.
The barrel stopped steering the dollar
The last two notes asked whether energy or the Fed was driving this market. This week gave a cleaner answer than either of them.
Brent broke below $100 on Tuesday, after Saudi Arabia restarted its east-west pipeline and Iran reportedly offered to reopen the Strait of Hormuz within seven days. It was back above $100 on Wednesday, above $105 on Thursday, and on Friday it eased; a Windsor Brokers technical note carried by Action Forex that afternoon put its nearest support at $104.14.
The dollar did not follow it either way. By Tuesday evening crude had fallen for five straight sessions and the Dollar Index stood at its highest since late July, which FXStreet called the opposite of how the war had moved it for most of this year. It kept climbing when the barrel came back. The $100 line that Action Forex had put upstream of everything else, as last week's note reported, was crossed on Tuesday and again on Wednesday, and the dollar rose through both crossings.
The week in our price feed
| Pair | Friday 18 | Friday 25 | Change |
|---|---|---|---|
| EUR/USD | 1.1487 | 1.1391 | −0.83% |
| GBP/USD | 1.3395 | 1.3245 | −1.11% |
| AUD/USD | 0.7124 | 0.7024 | −1.40% |
| NZD/USD | 0.5721 | 0.5664 | −1.00% |
| USD/CAD | 1.3983 | 1.4140 | +1.13% |
| USD/CHF | 0.8221 | 0.8285 | +0.78% |
| USD/JPY | 156.89 | 157.28 | +0.25% |
Last one-minute price before the Friday close in our own MT5 feed. Read by direction, the dollar finished higher against all seven, most against the Australian dollar and least against the yen.
The yen's small number hides a round trip. USD/JPY rose for a fifth straight day on Thursday and touched 159.02, the week's high in Action Forex's weekly outlook, while Finance Minister Katayama said the principles behind the joint US-Japan intervention of 31 July were still in effect. On Friday it fell below 158 as Katayama, and then Prime Minister Takaichi herself, said President Trump had raised the yen's weakness with Takaichi in New York.
Gold ended the week 1.95% lower in the same feed, at $4,291, after a one-week low of $4,244 on Thursday. Silver lost 2.97%.
What our own gauges saw
| Session | MRS | FSI | Led the session | Dollar's place |
|---|---|---|---|---|
| Mon 21 | 62 | 67 | yen, 20.9% of minutes | 8th of 8 |
| Tue 22 | 69 | 68 | New Zealand dollar, 18.8% | 4th |
| Wed 23 | 69 | 65 | Australian dollar, 25.2% | 7th |
| Thu 24 | 69 | 67 | yen, 22.9% | 7th |
| Fri 25 | 62 | 69 | Swiss franc, 20.3% | 8th |
Readings at each session's close. Every session this week had a leader clear enough to name, which last week happened only twice. The FSI closed every session in Greed, between 65 and 69, against 61 to 64 the week before.
Why don't the table and the scoreboard agree?
Put our strength table next to the price table above. The four currencies that led a session this week were the yen, the New Zealand dollar, the Australian dollar and the Swiss franc, and the dollar gained on every one of them over the week. The Australian dollar led Wednesday with the largest share of the week, a quarter of the session's minutes, on a day it fell more than 1% against the dollar. The yen led two sessions in which USD/JPY rose, and spent more of Friday's minutes at the bottom of the table than any other currency, on the day it rallied.
That is not a fault in either table. Our currency-strength oscillator ranks the eight majors every minute by a momentum reading built from 28 pairs, and counts how many minutes each one spends in first place. It does not add up how far a currency travelled over the session, let alone the week. Last week's note and Monday's roundup described it in terms of speed; that was wrong, both have since been corrected, and minutes at the top of the ranking is what it counts.
So the test we set was narrower than the question it was meant to answer. The Dollar Index and our own feed both show a dollar that finished the week higher, and the yields show why. Our table says the dollar spent fewer minutes in first place than any other major over the week, and that is a different finding from where it finished.
What stays open
The data will test the repricing. XM's week-ahead preview lists the Conference Board's consumer confidence on Tuesday, ADP and the final second-quarter GDP on Wednesday, the August PCE figures, the ISM manufacturing survey on Thursday and nonfarm payrolls on Friday, when the eurozone's flash inflation for September is also due. Wells Fargo expects payrolls to slow to 90,000 with the unemployment rate steady at 4.1%, and eurozone headline inflation to rise from 3.2% to 3.6%.
Two things sit outside the United States. The Reserve Bank of Australia meets on Tuesday, 29 September according to Standard Chartered. Action Forex reports that the four big Australian banks all expect a 25 basis point hike to 4.60%. TD Securities, Standard Chartered and Wells Fargo expect the same, and ING also expects a 25 basis point increase. China goes into its week-long National Day holiday, and InvestingLive notes that without its China anchor the Australian dollar has to lean more on oil, Treasury yields and the RBA.
On the dollar itself, ING says rising long-end yields are helping it consolidate even though its gains look stretched against short-term fundamentals, and Brown Brothers Harriman notes that the oil pullback eased the bond selling and cooled the rally.
The tell to watch. 159 on USD/JPY. The pair topped at 159.02 on Thursday while Tokyo repeated its warnings, and fell back below 158 on Friday as Japanese officials relayed Trump's concern about the yen. With payrolls, PCE and a ten-year yield above 5% in the same week, a move back above Thursday's high with no intervention from Tokyo would say the warnings have stopped working. If the pair spends the week below that high, the line held without Japan spending a yen.
