Yields Tumble allowing US dollar to plummet

Week of June 17-21

The prospect of a new era of easy money continues to resonate through global financial markets. Yields are tumbling to record lows, the dollar plummeting and US stocks resume their march to all-time highs after the Fed’s dovish capitulation.

U.S Treasuries are leading the sovereign bond rally, with 10’s falling below +2% for the first time in three-years as expectations grow that “most” G7 central banks will ease policy.

The U.S. 10-year yield has fallen to +1.9719% after the Fed signaled Wednesday it was ready to cut interest rates. Powell and co. dropped a reference to being “patient” on rates and forecasted a larger miss of their +2% inflation target this year in its statement. Alongside post-decision press comments and a shift in the dot plot, it was basically about as ‘dovish’ as the Fed could go without an actual cut. Futures are now signaling four rate cuts before the end of 2020, with one at the July 30-31 meeting fully priced in.

Japan’s JGB benchmark yield dropped to -0.185%, near the bottom of the BoJ’s targeted range after Governor Kuroda suggested policy makers “would not step in to prevent further declines,” while similar rates in Germany have fallen deeper into the negative, approaching a record low reached earlier this week.

Already this week, the European Central Bank (ECB) suggested it may cut interest rates as soon as its next policy meeting, along with the Fed, however, this maybe be premature for stock ‘bulls’ as the effect should ultimately be negative for equities since it would provide little actual economic stimulus while stoking recession fears.

The Bank of England (BoE) kept rates steady in an unanimous vote (9-0), surprising some who expected Haldane and Saunders to follow through on their recent ‘hawkish’ comments. Governor Carney mentioned that the market is not agreeing with their Brexit assumption view. No-deal risks are rising and since the BoE was expecting a smooth Brexit, we will likely see a long pause on a rate hike from the BoE. The bank cut their Q2 outlook from +0.2% to +0.0%.

Downunder, Reserve Bank of Australia’s (RBA) Lowe indicated its “not unrealistic” to expect another rate cut, after policy makers lowered their benchmark for the first time in three-years this month.

The outlier in the Northern hemisphere is Norway’s Norges Bank, who hiked rates for the third time Thursday since last September and indicated that “there is more to come.”

Sino- U.S trade watch

President Trump said he would meet with Chinese President Xi Jinping at the G20 summit later this month and said talks between the two countries would restart after a recent lull.

Brexit, what next?

Many believe that sterling has already baked in a Boris Johnson win. But, what’s next? Consensus sees Boris becoming the new PM and he won’t get a deal with the EU before the October deadline; hence, he will go for a “no deal.” If so, then most likely, U.K Parliament will block it with a vote of “no confidence” and the country will probably head to the polls. This could open the door to a Labour/Libs/Brexit party gaining seats and a hung parliament or Labour winning a small majority – a mess by all accounts.


Tensions continue to run high in the Middle East as Iran now claims to have taken down a U.S drone. Apparently a “spy drone” was shot down after it entered Iranian airspace near the Strait of Hormuz. The US blames Iran for the recent attacks on tankers in the Gulf of Oman and is sending more troops to the region in response to Iran’s “hostile behavior.”


Gold has gained +8.5% over the past month, boosted by mounting expectations that the Fed and other central banks will ease monetary policy, as well as heightened geopolitical tensions in the Middle East and elsewhere.

Economic events

There are no events on the Economic Calendar for this weekend.

Market concerns

• UK leadership scramble & Brexit fallout
• US-Sino trade
• Trans-Atlantic trade tensions to intensify
• OPEC, Saudis, Venezuela, Libya & Trump
• Iran is threatening to close the Strait of Hormuz
• Venezuela/Russia/U.S tension
• Geo-political concerns in Iran, Russia, Ukraine & France
• U.S ramps up trade talks with India and Turkey
• Turkey’s Erdogan posturing
• Italian deputy PM Salvini is threatening to end the Govt tenure

Next week: U.S consumer confidence & RBNZ monetary policy announcement (June 25), U.S core durable goods, NZD business confidence & U.K inflation hearings (June 26), U.S GDP & G20 meetings (June 27), U.K current a/c, G20, CAD GDP & business outlook (June 28), CNY manufacturing PMI (June 29).

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell