On Tuesday, world markets experienced a real shock, feeling the consequences of selling the public debt in the US market. The foreign exchange market reacted sharply with the appreciation of the dollar.
It seems that market players have really experienced what it means to change the trend in the US government bond market. Previously, the topic was repeatedly discussed that the increase in the yield of government securities on Tuesday. This occurred against the background of a sale, which will lead to a reassessment of investors’ attitude on other risky assets. We have also repeatedly touched upon this topic, pointing out that the increase in profitability will lead to a change in priorities of the global markets. Previously, investors actively bought up using the cheap borrowed money, which is not getting by for this purpose. They received in the framework of quantitative easing programs, and then after which, they used low-interest rates, but now the situation is radically changing.
The rise in the cost of borrowing and the Fed assumed that it will continue to raise interest rates, besides the likely desire of many countries to reduce their injections into America’s public debt, which will help increase the value of money. In turn, this will drive investors to exit from bonds to the dollar. A change in the market paradigm will lead to a reassessment of the views of major market players and, as a consequence, to the redistribution of capital flows in world markets.
Assessing such deep processes, we believe that the US stock market will continue to unfold, and the prolonged period of consolidation of the major US stock indexes will be completed. The dollar will most likely gradually continue in recruiting. In here, there is factor of growth in the yield of Treasury bonds of the US Treasury, and, of course, the obvious weakness of such major currencies, such as the euro, sterling, yen and many other major currencies that still remain in the dollar’s wake, which will play an important role. We have repeatedly raised this issue, pointing out the process of slow economic growth in Europe and Japan, as well as in other regions of the world. The slowdown of inflationary pressures in advanced economies will prevent the local Central Bank from stepping up the process of transition from soft to hard monetary policies.
Forecast of the day:
The EUR/USD pair is trading above the level of 1.1815. If the growth in yield of US government bonds continues today, there is a possibility of a breakthrough at the price of this mark and a fall of the pair to 1.1735.
The USD/JPY pair is above the level of 110.20. If it falls on the wave of correction below it, it may fall to 109.90. At the same time, the growth of the pair may resume and reach the level of 111.25 against the backdrop of a possible continuation of sales in the U.S. government bonds market.