After falling to their lowest level since late February, US 10-year Treasury rates are still under pressure.
Sentiment is weighed down by negative US statistics and covid troubles.
Risk catalysts remain in the driver’s seat as the FOMC minutes are released and the ECB holds an emergency meeting.
In the early Asian session on Wednesday, US 10-year Treasury rates extended their recent bearish swings to approximately 1.35 percent, down 1.5 basis points (bps). As US traders returned from a long break, the bond pair dropped to its lowest level since February 26.
The headlines about the coronavirus (COVID-19) and sluggish US statistics have renewed market concerns about another economic downturn. The lack of important data/events and the cautious tone ahead of today’s Federal Open Market Committee (FOMC) Meeting Minutes, as well as Thursday’s surprise ECB meeting, could also support the moves.
The covid mutations and their vaccination resistance have recently sparked new pandemic fears. This is an additional source of concern for developing economies, as well as some industrialized economies, such as Australia, where jabbing is slow.
The US ISM Services PMI, on the other hand, fell below the 63.5 expectation and to 64.0 from 60.1 in June. The findings came after mixed US employment data was released on Friday, putting the Fed’s hawks to the test. However, in the midst of a covid rebound, the economics couldn’t help the market optimists. It’s also worth mentioning that weak US inflation expectations, as indicated by the 10-year breakeven inflation rate from the Federal Reserve Bank of St. Louis (FRED) statistics, are weighing on sentiment.
Short-term traders are distracted by the US-China spat, Brexit, and the White House’s demand for global aid to developing countries ahead of the important FOMC Minutes and a special meeting of the European Central Bank (ECB).
While the FOMC Minutes will be heavily scrutinized for specifics of the policymakers’ disagreements, the ECB is largely expected to maintain loose money, but the meeting’s status is a surprise that traders should be wary of.
Despite the RBA’s hawkish stance, the tide of central bankers’ rush to taper and rate hikes appears to have dissipated recently. Bulls, on the other hand, aren’t out of the woods yet and keep the markets on edge.
Read more about what a reduction in yields ahead of the Fed’s minutes means for the dollar./n
