U.S Dollar Fundamental Analysis for Fri Aug 18th, 2023
The dollar index eased to around 103.2 on Friday but was still on track to advance for the fifth straight week, as minutes of the Federal Reserve’s July meeting showed that policymakers stressed that upside risks to inflation remain, leaving the door open to further policy tightening. However, some participants flagged the economic risks of pushing rates too far, emphasizing that future rate decisions would depend on incoming data. The latest data also showed that the number of Americans filing new claims for unemployment benefits fell last week, pointing to continued tightness in the labor market. The dollar is set to gain against most major currencies this week but remains down against sterling as key measures of price growth monitored by the Bank of England failed to ease in July. The yield on the 10-year Treasury slid to 4.22% on Friday after rising to as high as 4.328% in the previous session, the highest since October 2022 and just a tad below its highest level since 2007. The fluctuation is due to investor concerns about the economic impact of high interest rates. The Federal Reserve's meeting minutes from July highlighted that there are still risks of higher inflation, suggesting the possibility of more tightening of monetary policy. Despite recent data indicating a decrease in inflationary pressures, a strong US economy and a robust job market are reasons supporting the continuation of high interest rates. The average rate on a 30-year fixed mortgage jumped by 13 basis points from the previous week to 7.09%, the highest since 2002, as the hawkish outlook for the Federal Reserve underpinned expensive mortgage rates for American consumers. A year ago, the 30-year fixed mortgage rate was 5.13%. "The economy continues to do better than expected, and the 10-year Treasury yield has moved up, causing mortgage rates to climb," said Sam Khater, Freddie Mac’s Chief Economist. "The last time the 30-year fixed-rate mortgage exceeded seven percent was last November. Demand has been impacted by affordability headwinds, but low inventory remains the root cause of stalling home sales." Source: Freddie Mac
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