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Rising Yields Shake Markets as Dollar Strengthens, Risks Mount

Rising yields were the market’s main driver last week. Most analysts expect even higher yields in 2025 and little or no rate cuts from central banks. Will they be correct in this prediction? We have now reached a point where the market is heavily tilted to one side, which is always dangerous.

The US Dollarrose further to start the year, helped by the stronger-than-expected US NFP data. However, although the headline number seems strong, the underlying details are still deteriorating. Last week, the DXY index rose 0.7% to close at 109.641, and the EUR/USD reached a low of 1.02 for the first time since 2022.

The Euro managed to have a decent week, falling against the USD but rising against most other major currencies.

Sterling was under pressure throughout the week as Gilt yields spiked higher. Rising yields are becoming a big problem for the UK treasury, and some verbal intervention will likely come soon.

Commodity currencies fell once again as the Dollar rallied despite Oil’s strong performance. Last week, the AUD, NZD and NOK fell 1% against the greenback, while the CAD fared better with a 0.2% gain. Elsewhere in FX, the JPY posted a slight loss, and the CHF fell nearly 1%.

Oil had a third strong week, confirming its bounce from important support. Last week, the WTI rallied over 3% to close at $76.54.

Despite the Dollar’s strength and rising yields, precious metals had a second strong week in a row. Last week, Gold gained 2% to close at $2,689, and Silver rallied 3.4% to $30.40.

Bonds continued to fall, prompting analysts to call for the central bank cutting cycles to end. This is very premature and carries risks. Last week, the 10-year UST yield rose 16bps to 4.76%, and the 10-yearBund fell 1.2% to close at 130.858.

Equities were spooked by rising yields and had a bad week. Is this the end of the current bull market? Technically, we are not there yet, but we are getting closer. Last week, the S&P500 index fell 2% to close at 5818 points, and the DAX rallied 1.5% to 20214.

Finally, crypto-currencies are still struggling to regain their recent all-time highs and are under pressure along with equity indices. At the time of writing, Bitcoin was down 4% at $94,000, and Ethereum was down nearly 10% at $3,250.

The Week Ahead:

We will focus firmly on yields next week as we try to break critical resistance levels. If we continue higher, we should expect more risk-off flows and stronger USD. Data-wise, it will be a busy week, with CPI readings from the US, the Eurozone, and the UK and Retail Sales data from the US and UK.

Market Commentary: This communication is for informational purposes only. It is not intended as an offer or solicitation to purchase or sell any financial instrument. All market prices, data, and other information are not warranted as complete or accurate and are subject to change without notice. Any comments or statements made herein do not necessarily reflect those of Coeus Capital. Coeus Capital does not assume any liability whatsoever for the content of this newsletter or make any representations or warranties as to the accuracy and completeness of any information contained in this newsletter.

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