The US dollar (USD) ended the week as one of the worst performers, putting an end to its three-week consecutive bullish streak. USD sell-off increased on Friday following poor PMI data figures that showed the US economy was currently in contraction.
Declines in benchmark yields further intensified the sell-off, as traders’ bets showed a mass expectation of a lower interest rate from the US Federal Reserve in its tightening cycle.
US Dollar to Continue Lower as US GDP Contraction Begins
Capital markets have priced in an 80.5% chance of another 75 basis point hike in the Fed’s meeting this Wednesday. However, this announcement is unlikely to fuel any upside for the dollar as the US PMI report and the GDP contraction report would weigh heavy on the greenback.
The Canadian dollar (CAD) closed as the second weakest, followed by the British pound (GBP). The euro (EUR) enjoyed a mild bullish reaction thanks to the higher-than-pre-committed rate hike by the European Central Bank (ECB) last week. The Japanese yen (JPY) and the Swiss franc (CHF) ended the week as the second and third best performers, especially towards the end of the week amid a tumbling USD on declining treasury yields. The Australian dollar (AUD) secured the number one spot after risk appetite got a decent facelift.
Yield curve inversion in the US has been one of the hottest topics in the capital markets. Analysts expect this factor to play a critical role in price action this week, after a steep decline in the 10-year yield to 2.783 on Friday.
There are three parameters mostly used in predicting a recession and include the yield curve, the depth of the yield curve, and the duration of the inversion. Latest statistics show that the depth of inversion of the 2-year to 10-year yield has surpassed that of 2006, the run-up to the global financial crisis in 2008.
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