The dollar is on the back foot again to start the day
This feels a bit of a repeat of yesterday's price action with the dollar holding weaker across the board amid slightly softer Treasury yields to start the session. That said, the difference this time around is that yields are actually sitting higher than where they were yesterday.
10-year yields are now at 2.127% - albeit down by ~1 bps - and that tells you how the bond market is viewing the Fed outlook i.e. not expecting majorly aggressive easing or traders are confident that the rate cut this month will spur inflationary pressures.
Fed chair Powell's testimony yesterday offered more of the same stuff and continued to highlight weakness to the economic and inflation outlook, though other Fed speakers weren't too convinced - besides Kashkari - as they argued that the economy remains healthy.
If you think about it from the context of the bigger picture, it took the Fed 5 years from the taper tantrum to get rates to where they are now so as to build a buffer in case they need to counteract an economic downturn. So, to throw away one piece of that so easily just based on worries of a mild slowdown in the data is a bit uncharacteristic.
Sure, there are concerns that this could blow up into something bigger amid weakness in other economies globally, but this is one where sadly enough I feel politics has won and central bank independence has just taken another knock.
Looking ahead, I still reckon we won't see protracted dollar weakness considering how yields are faring but instead we'll likely get more choppy trading moving forward as the focus stays on the Fed to finish off the week.
