This week, the impression is that the dollar exchange rate is being tossed around due to the sharp fluctuations in US bond yields. One factor behind the rise in yields is the expectation that the US monetary authorities will maintain high interest rates for an extended period. Additionally, there are concerns about inflation reigniting amid the spread of geopolitical risks. Furthermore, amid the spotlight on the US fiscal deficit issue, there are observations that the issuance of US government bonds may trigger an increase in yields.
In the midst of this, the results of the ECB (European Central Bank) meeting are scheduled to be announced tomorrow. In the market, it is expected that after the precautionary rate hike in the previous meeting, there will be a period of no rate hikes for a while. However, ECB President Lagarde has repeatedly made statements leaving the possibility of future rate hikes open and is keen on ensuring the flexibility of monetary policy. Yesterday, there were moments where the Euro was sold off as PMI flash estimates for the Eurozone, including Germany and France, showed weakness, in line with the trend in US bond yields.
Other economic indicators scheduled for release include the US MBA Mortgage Applications Index (10/14 – 10/20) and the Bank of Canada’s policy interest rate announcement, among others. The US housing market has been hit by the rapid rate hikes and the increase in long-term interest rates. The mortgage application index dropped by 6.9% in the previous release. The 30-year fixed-rate mortgage, which serves as a benchmark for mortgage interest rates, had risen for six consecutive weeks to 7.70%. Considering the recent further increase in US long-term bond yields this week, the situation cannot be viewed optimistically.
The Bank of Canada is expected to keep the policy interest rate at the current 5.00% in this meeting. Whether they will slightly ease their inflation alert stance in the statement, given the slowdown in headline inflation, seems to be a key point.
Today, we are paying attention to the movement of the EUR as we approach tomorrow’s ECB meeting. Currently, it is being sold off, but it is anticipated that there may be a rebound in the near future.