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US dollar continues its advance as treasury yields hit 2 year highs

Wednesday 19 January, 2022

Daily Currency Update

US treasury yields have continued to creep higher, with the 10-year rising to its highest level since late 2019 overnight.  Expectations for four US Federal Reserve rate hikes this year are almost fully priced in.  In fact, there is growing consensus for two rate hikes by March.  The move higher in yields has taken its toll on global equity markets with pretty much every major index finishing the day in the red over the last 12-24 hours.  The negative risk sentiment has been further fuelled by rising tensions between Russia and Ukraine and the continued upward pressure on the price of oil, this itself is a reflection of rising tensions in the Middle East as well as supply issues.  It’s meant that the safe-haven currencies such as the U.S. dollar and Yen have been bid higher and emerging and commodity currencies such as AUD and NZD have weakened. GBP/USD is lower again and opens this morning sub-1.36, this is despite the release of stronger than expected inflation data released already, which printed at its highest level since 1992.  Bank of England Governor Bailey is due to speak later today and will likely provide investors with a clearer indication on the future for monetary policy.  

Key Movers

All eyes are on U.S. treasury yields – they’re continuing to push higher this morning – as well as the oil price, but it’s feeling a bit like one-way traffic at the moment.  Whether Bailey’s comments provide any support to GBP/USD we’ll have to see, but he will need to strike an extremely hawkish tone if this current trend in the pair is to be arrested.

Expected Ranges

  • GBP/USD: 1.3580 - 1.3660 ▲
  • GBP/EUR: 1.1950 - 1.2040 ▲
  • GBP/AUD: 1.1880 - 1.9090 ▲
  • EUR/USD: 1.1290 - 1.1400 ▲