Following Closely US Bond Yields for Direction After the FOMC

The day has been mostly quiet as we wait for the FED meeting later in the evening. Although we did see a slump in the US dollar, after US bond yields started retreating. with almost everyone expecting the FED to keep interest rates unchanged at 5.50% today. The bond market has been the main driver of risk in in financial market so the US treasury yields chart would be the finest to refer to in order to understand the FOMC meeting decision later today.

US bond yields have been rising, with 10-year yields temporarily reaching their highest levels since 2007 earlier this week, at around 4.413 points, despite the FED’s declaration that it is pausing this time while trying to keep rates higher for longer.

So, the bond market is still the most crucial area to monitor in order to determine how the FED’s decision affects the overall risk sentiment. The FED’s decision to hold off from hiking further today is a certainty. However, the language and communication in the statement and in the press conference will still be crucial, and I anticipate that they will be comparable to what they were at the previous meeting.

For the moment markets are pricing in a 50/50 chance of a hike for November, depending on the economic figures, so there is little need to change anything. Jerome Powell is likely to repeat how dependent they are on data and how robust the US economy has been thus far. Try not to repair what isn’t broken.

The dot plots and economic estimates will be the next item to keep an eye on today. The former will now, in my opinion, be less important, but the latter should still be taken into consideration. It is reasonable to continue anticipating yields to remain higher for longer along with interest rates if the Fed continues to believe that the economy is remaining more robust and the evidence supports that perspective. In turn, that will maintain the dollar’s stability overall.

Furthermore, there may be additional pain in the markets, particularly for stocks, if 10-year rates do break out higher than 4.36%, which would be a cause for concern in stock markets and for USD sellers.