In early European trade on Tuesday, the U.S. dollar declined as risk sentiment increased, while sterling held onto recent gains following the U.K. government’s policy reversal.
The Dollar Index measures the value of the dollar against a basket of six other currencies. It lost 0.5% to 111.145 at 03:05 ET (07:05 GMT), hitting a two-week low. Traders are starting to worry whether the Federal Reserve would need to change the course of its rate hikes because of the downturn in the U.S. and global economy. Over the last week, this has caused a dramatic rally in government bonds, forcing benchmark Treasury rates down the yield curve, a trend that has continued on Tuesday.
The yield on the 10-year Treasury is now at 3.60%, down an additional five basis points from Monday’s closing, while the yield on the 2-year Treasury, which is more sensitive to predictions of Fed action, was down seven basis points at 4.03%. However, Goldman Sachs still believes that the dollar will rise.
What Do Experts Predict for The Dollar?
Even if values have become out of line with the macro situation, the investment bank’s analysts wrote in a report that they still expect the dollar to strengthen in the future. We continue to believe that further dollar increases of 5% to 7% appear plausible given the Fed’s shift toward aggressive policies. Following the British government’s decision to reconsider the idea of eliminating the highest rate of income tax, the GBP/USD exchange rate increased 0.5% to $1.1375.
To soothe the markets, the new finance minister Kwasi Kwarteng also said that he would be pushing forward his fiscal statement, in which he should propose expenditure cutbacks to try and reduce the government’s indebtedness. The chairman of the U.K. DebU.K.nagement Office said on Monday that despite “a big repricing” in the bond market in Britain, the additional 62B pounds ($69B) of debt issued should be easily absorbed.
Ahead of the announcement of the most recent producer prices for the whole Eurozone for August, the EUR/USD increased 0.4% to 0.9864.