Dollar Soars to Two-Year High as Rate Cut Hopes Fade
Published: Monday, 13 January 2025 10:57 | 
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The US dollar reached its highest level in over two years, driven by Friday's unexpectedly strong employment report that showed accelerating job growth and a 4.1% unemployment rate. This economic strength has dramatically shifted market expectations, with traders now questioning whether the Federal Reserve will cut rates at all in 2025, down from previous expectations of two quarter-point cuts. The dollar's surge is creating widespread pressure on global currencies, particularly affecting the euro, which dropped to $1.0177, and the British pound, which fell to $1.21. The situation could intensify depending on Wednesday's US inflation data and President-elect Trump's upcoming policies on tariffs, taxes, and immigration, which could potentially fuel inflation. For the UK, the currency weakness is compounded by concerns over rising borrowing costs and potential government spending cuts expected in March.
Treasury Yields Climb as Rate Cut Hopes Crumble
Published: Monday, 13 January 2025 10:30 | |
| US Treasury yields surged to multi-month highs following strong December employment data, with the 10-year yield reaching 4.80% and the 30-year approaching 5%. The selloff, driven by persistent inflation concerns and growing government debt, has led markets to price in fewer rate cuts for 2025 and is causing ripple effects across global markets, strengthening the dollar to a two-year high.
Global Rate Reset Threatens UK's Economic Balancing Act
Published: Monday, 13 January 2025 10:15 | |
| Global bond markets are in turmoil following stronger-than-expected US jobs data, forcing a worldwide repricing of interest rate expectations. While the US economy's strength might justify higher rates, countries like the UK face a more challenging scenario, combining mediocre growth with inflation concerns and currency weakness. The Bank of England is now expected to deliver fewer rate cuts in 2025 than previously anticipated, with markets predicting just two quarter-point cuts from the current 4.75%. The situation is particularly concerning for the UK as oil prices rise above $80 per barrel while sterling weakens, threatening to push inflation above 3% by April. This global reset in rate expectations could have far-reaching implications for asset prices, especially those valued based on assumptions of returning to the low-rate environment of 2012-2020. Japan's potential monetary policy normalization adds another layer of risk, as Japanese capital might flow homeward, affecting global market liquidity.
40-Year Pattern Break: Yields Rise Despite Fed Rate Cuts
Published: Monday, 13 January 2025 10:10 | |
| A historically rare phenomenon is unsettling investors as the 10-year Treasury yield has climbed by about the same magnitude as the Federal Reserve's recent rate cuts, something that's happened only twice since the early 1980s. The benchmark yield has surged from 3.6% to 4.77% since mid-September, nearly matching the Fed's full percentage point in rate cuts. This unusual movement breaks from the typical pattern where long-term rates fall during Fed easing cycles. Market experts attribute this divergence to multiple factors, including persistent inflation concerns, strong economic data, and uncertainty around President-elect Trump's policies. The situation echoes elements of the 1981 market environment under Fed Chair Paul Volcker, raising questions about the Fed's ability to achieve its 2% inflation target and potentially forcing a reassessment of rate cut expectations for 2025.
Treasury Yields Near 5% as Global Bond Selloff Intensifies
Published: Monday, 13 January 2025 10:06 | |
| The global bond market is facing a dramatic reset as yields surge across major economies, led by the $28 trillion US Treasury market. Just days into 2025, yields have climbed significantly, with the 10-year Treasury rate rising over a percentage point in four months and approaching the symbolic 5% level. This bond market "tantrum" reflects multiple pressures: surprisingly robust economic data, reduced expectations for Fed rate cuts, and growing concerns about US fiscal policy ahead of Trump's return to the White House. The implications are far-reaching, affecting everything from mortgage rates and corporate borrowing costs to stock market sentiment. Adding to market anxiety is the unusual disconnect between Fed policy and market yields, as rates continue rising even after the Fed began its easing cycle in September. With fiscal deficits projected to exceed 6% of GDP and expectations of Trump's growth-focused policies potentially expanding deficits further, some analysts warn of the return of "bond vigilantes" who may force a reckoning over fiscal policy.