The dollar inched higher on Thursday, bolstered by a rise in U.S. Treasury yields, as investors assessed the outlook for Federal Reserve policy against the likelihood that high interest rates may trigger a recession.
The Federal Reserve, the European Central Bank, and the Bank of England will all make significant judgments the week after next, among others.
The important concern for traders and investors is whether inflation has reached its zenith, which would allow policymakers to implement lower interest-rate hikes in the coming months.
The monthly consumer price index for the United States is also due the following week, one day prior to the Federal Reserve's policy meeting on December 14, and could be crucial in determining longer-term monetary policy expectations.
Adam Cole, a currency strategist at RBC, stated that the U.S. CPI is the only data release that appears to have a significant impact on the broader direction of the dollar at the moment. "Until we get those central bank meetings and one key monthly U.S. data release, not much is happening," he added.
The dollar was very stable versus a variety of major currencies. The euro remained unchanged versus the dollar at $1.0507, while the pound fell 0.3% to $1.2171.
The yen, which is particularly sensitive to changes in U.S. Treasury yields, lost 0.25% to 136.90 on Thursday, giving up a portion of its 0.4% gain on Wednesday.
Since reaching a 15-year high at the end of October, the yield on 10-year Treasuries has declined virtually constantly, losing about a full percentage point. In fact, it has reversed over half of the surge that occurred between the four-month lows of August and the top of 4.34% in October.
In the meantime, oil prices have dipped below $80 per barrel for the first time since the Russian invasion of Ukraine in late February, as concerns about the impact of a slowing economy on global energy consumption have increased.
Since reaching a 14-year high of $139.13 in early March, Brent crude futures have decreased to approximately $78. According to the American Automobile Association, gasoline prices at the pump in the United States, which in June reached a record high of $5.016, are now at $3.329, down 0.4% from the same time last year.
With the decline in energy costs, market-based inflation predictions have also softened. The 10-year breakeven inflation spread, which is calculated by subtracting the yield on an inflation-linked Treasury note from the yield on a nominal 10-year note, is at just 2.27 percent, having peaked above 3 percent in April.
In the first three months of this quarter, the dollar has lost 6.2% of its value due to these two factors and declining hopes that the Fed will maintain its aggressive rate of interest rate hikes.
According to Refinitiv statistics, this has put the dollar on track for its worst quarterly performance since the third quarter of 2010, when it fell 8.5%, and its worst fourth-quarter performance since 2004.
"The price action continues to indicate that market players are growing less concerned about inflation risks on the upside and more concerned about threats to global growth on the downside," said Lee Hardman, currency strategist at MUFG, in a note.
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