Since Monday, the U.S. Treasury Bond Yields have fallen between 3-4 bps, marking the third consecutive week of losses. The escalating tensions between the United States and China have also contributed to a flow of bond purchases in search of safe-haven assets.
Although Fed’s Chairman Jerome Powell warned that there is still a long way to go before the bond buyback program can be finalized, the markets expect the institution to conclude tapering by the end of 2022, in a context of rising inflation. Rate hikes are being discounted as early as next year. For this reason, it could be essential to confirm the transience of recent price increases that do not force the Fed to make any move on the bond program ahead of schedule.
In any case, the markets begin to anticipate this possibility, not giving too much credibility to the Fed's point of view. This is reflected in a stronger dollar against all currencies, with the only exception being the JPY. USD / JPY pair has fallen due to the strength of the Japanese currency due to its status as a safe-haven currency in the context of weaker stock markets and a more worrying geopolitical scenario.
However, EUR/USD returns to the low zone after the rally, which propelled it to 1.1850 caused by Mr Powell's comments. The market reacted at first to this statement by causing a weakening of the dollar. However, after digesting the news, it has renewed its concerns about inflation, which still appears probable and is reflected in the rest of the financial assets. In addition, the intrinsic weakness of the euro increases the downward pressure of the pair, now finding its support zone at 1.1770.
Despite this scenario of greater risk aversion, the North American USA30 index remains in the high zone of its recent price, very close to the resistance located at 34880, historical highs, above which its upward momentum would increase.
As an index with a greater number of cyclical stocks linked to economic growth, the possibility of getting the $3 trillion U.S. infrastructure investment plan approved provides significant support for USA30.
Sources: Bloomberg, reuters.com.
