US 10-year breaks neckline

29. Juli 2022

The ongoing rally in bonds have been driving everything from FX to metals this week. As bond prices surged higher, their yields fell, boosting the appeal of low- and zero-yielding assets such as the Japanese yen, gold, silver and bitcoin.

Yields have been dropping since the middle of June and this week saw that trend accelerate after the first estimate of the second quarter GDP confirmed the US was in a recession. Although the dollar fell against some currencies, most notably the yen, it held its own relatively well against the euro and pound, although I reckon it is only a matter of time before these currencies also find some buying interest.

Interestingly, yields couldn't hold onto their gains made in the aftermath of stronger US data on Friday. We saw core PCE Price Index top expectations, along with personal income and spending. What's more, the Employment Cost Index rose more than expected, all pointing to a stronger US economy.

But it wasn't enough to shake off concerns about the economy after that drop in GDP in mid-week raised bets that the Fed will have to slow down the pace of the hikes and potentially go in reverse in early 2023.

The market is now no longer expecting to see a hattrick of 75 basis point hikes in September.

In short, if yields fall further, I would expect to see further strength in foreign currencies and precious metals. Oh and the Nasdaq, too.

By Fawad Razaqzada on behalf of FOREX.com