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The American dollar advanced on Tuesday amid prevalent risk aversion. US government bond yields soared to support the dollar’s performance all day long, as the 2-year Treasury yield touched its highest in fifteen years ahead of the Fed’s policy decision.
The yield on the 10-year Treasury note is now at 3.56% after hitting 3.604%, while the 2-year yield peaked at 3.992%, now hovering at around 3.96%.
Traders and investors are worried because if the Fed hikes rates by more than 75 bps given stubbornly high inflation, the impact of the move could extend to almost all assets.
Economic Data
The monthly data published by the US Census Bureau revealed on Tuesday that Housing Starts rose by 12.2% in August following July’s10.9% contraction.
According to the Federal Reserve Bank of Atlanta’s GDPNow model, the US economy is expected to grow at an annualized rate of 0.3% in the third quarter, down from 0.5% in the previous estimate.
Other Developments
The central bank will present fresh Economic Projections, with the focus on growth and inflation expectations. The Fed will be the first but not the only central bank to announce its monetary policy decision in the next 48 hours.
The Bank of Japan, the Switzerland National Bank, and the Bank of England are the most relevant to making decisions following the Fed.
The EUR/USD pair was unable to retain parity and settled at around 0.9970. The GBP/USD pair trades around 1.1380. Commodity-linked currencies were among the worst performers, down against the dollar. USD/CAD trades at 1.3360, while AUD/USD is down to 0.6690. The USD/JPY pair holds ground around 143.60. Spot gold shed some ground now at $1,664 per ounce. Crude oil prices also eased, with WTI now at $84 per barrel.
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