The week was expected to be calm, but US Treasury Secretary Bessent had different plans. He initially announced a doubling of funds to purchase long-term US treasuries, raising it to $4 billion from $2 billion, with the possibility of further increases. Despite this, the bond market remains sceptical, and yields are still high.
The US Dollar continues to decline due to dovish stances from the Fed and Treasury, with market pressure persisting throughout the week. The DXY index ended the week 0.8% lower at 98.839.
The Euro and Pound moved in sync as CPI figures aligned with expectations and other economic indicators were mixed.
Commodity currencies thrived as the Dollar weakened, with the CAD up 0.8%, and the AUD, NZD, and NOK all rising over 1% against the Dollar. In other currency news, the JPY saw slight gains, the MXN rose 0.6%, and the CHF rose 1.5%.
Oil saw its third consecutive weekly rise, with WTI gaining 5% to close at $86.63.
Precious metals had a strong week, benefiting from the weaker Dollar and a rally in safe-haven assets, possibly signalling the start of a bullish trend after a six-month consolidation. Gold surged 5% to $4,603, and Silver jumped nearly 7% to $68.97.
Bonds initially rallied after Bessent’s announcement, but gains faded as the market signalled that words alone wouldn’t suffice; concrete action is needed. The 10-year UST yield increased by 4 basis points to finish at 4.73%, while the 10-year Bund dropped 0.4% to 123.761 points.
Equities experienced a rare negative week but remain in an overall bullish trend. Easier monetary conditions could support equities and other risk assets in the short term. The S&P 500 and the DAX both fell about 1%, closing at 7673 and 26136 points, respectively.
Meanwhile, cryptocurrencies have regained momentum, with Bitcoin and Ethereum surging over 20% to $77,300 and $2,430, respectively.
Looking ahead, the market is focused on bonds as we await actions from Bessent, Warsh, and Trump concerning rising yields. With soaring debt levels, the US cannot sustain high yields for long. Large-scale bond purchases by the Federal Reserve may be on the horizon, albeit under a different name than QE. Time will tell.
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