Dollar demand drags T-Yields lower ahead of Powell’s speech

After earlierly hitting three-month highs, US T-yields slipped on Wednesday because the demand for US dollars has helped send money into government debt and before an awaited speech by Fed Chair Jerome Powell on Thursday.

Overall, there is demand for dollars, so there’s more money pouring into the Treasury market. The US dollar surged to a 24-year peak against the yen and a 37-year high versus sterling as Japan’s dovish monetary policy and Europe’s economic problems contrasted with a relatively stronger US economy.

Investors funneled funds into safe-haven Treasury bonds as they sought out the US currency. Hedging needs from companies selling debt in the corporate bond market also eased, after a rash of activity on Tuesday pressured yields higher. The next major focus for markets will be Powell’s speech on Thursday, which will come before Fed officials enter into a shutdown period prior to the FOMC’s next meeting.

Concerns that central banks will be more hawkish than previously expected if energy prices rise or stay persistently high has pressured government bond yields higher globally in recent weeks.

Boston Fed President Susan Collins said on Wednesday that bringing inflation back down to 2% is the Fed’s “Job One,” and while it has raised rates significantly, “there’s more to do.”

Fed Vice Chair Lael Brainard also said that the US central bank will maintain tight monetary policy “for as long as it takes to get inflation down.” Powell’s speech will be watched for any indications that the Fed could pare back its aggressiveness if there are more signs that inflation is easing, with key consumer price inflation data for August due on Tuesday.