The data this week has been weighing on the Greenback and casting an eye over the last month, the US two-year yields, which reflect interest rate expectations, sank nearly 74 basis points (bps), the worst monthly fall since January 200.
Investors are fearful of a recession and are pricing in Federal Reserve rate cuts later in the year. The US two-year note was paying as little as 3.646% on the day while the yield on the 10-year note was down to a low of 3.268%. Both notes were poised to close at lows last seen in September as safe-haven buying pushed bond prices, which move opposite to their yields, higher.
Reuters reported that ´´futures priced in a 39.1% likelihood that the Fed raises its target rate by 25 basis points on May 3 when policymakers conclude a two-day meeting, down from 59.7% on Monday, CME's FedWatch Tool showed. Chances the Fed cuts rates by year's end also rose, with the outlook for the US central bank's target rate falling below 4.0% in December.
Nonfarm Payrolls eyed
Analysts at ANZ bank noted that ´´softer-than-consensus anecdotal US labour market data this week has fanned expectations that the jobs market may finally be cooling in response to Fed tightening.´´
The analysts explained that for Nonfarm Payrolls Friday, the Feb JOLTS (9.8k vs 10.6k last), March ISM services employment (-2.7 to 51.3) and March ADP (145k vs 261k last) all missed expectations and are pointing to downside risks to the market's 240k forecast.´´
´´The FOMC is currently anticipating a rapid slowing in the labour market. In fact, its forecast that unemployment will rise to 4.5% in Q4 envisions either a strong and unexpected rise in the participation rate and/or a persistent fall in payrolls,´´ the analysts added. ´´That looks a challenging proposition at present and with core PCE inflation ex-shelter sticky around 8.0% YoY, further Fed tightening seems appropriate.´´
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