The U.S. dollar held relatively steady on Tuesday as softer energy prices and a decline in longer-dated Treasury yields lent support to risk assets. Benchmark 10-year U.S. Treasury yields fell 10-15 basis points over the past week following remarks from U.S. Treasury Secretary Scott Bessent, who cited "asymmetric information" as justification for intervention in the Treasury market. An 8% weekly drop in oil prices has further eased financial conditions, though it remains unclear whether this trajectory was anticipated in Bessent’s policy guidance.
Attention now turns to key U.S. data releases, including today’s consumer inflation print and Nvidia’s after-hours earnings report. Markets will also parse comments from Federal Reserve Chair Kevin Warsh on Friday, while a $44 billion 30-year Treasury auction is scheduled for tomorrow. According to ING’s rates strategy team, the benign inflation backdrop has contributed to reduced volatility across interest rates, equities, and foreign exchange markets.
In the G10 space, the Australian dollar strengthened overnight after July inflation data exceeded expectations, increasing the likelihood of a Reserve Bank of Australia rate hike in November. The U.S. Dollar Index, meanwhile, is seen consolidating near the 99.00/10 resistance zone, with a drift back toward recent lows around 98.60 if support holds.
The euro extended gains as European Central Bank Executive Board member Isabel Schnabel signaled upside risks to growth in the September policy meeting. Schnabel’s remarks suggest the ECB may characterize growth risks as skewed to the upside, reinforcing expectations for a 25-basis-point rate hike to 2.50% next month. Market pricing also implies another 25 bps increase into early 2025. As a procyclical currency, the euro is viewed as benefiting from improved growth prospects, with support seen around 1.1650/60 and a potential move toward 1.1700/1710 if U.S. core PCE data remains contained.
The Chinese yuan showed signs of consolidation after last week’s sharp decline. Analysts cite two factors weighing on sentiment: the People’s Bank of China’s apparent moderation in fixing adjustments, which may reflect discomfort with the pace of appreciation, and concerns that new U.S. sanctions on Iran could disrupt U.S.-China economic détente. While direct sanctions on major Chinese entities appear unlikely in the near term, the market remains vigilant. Under a base-case scenario, the dollar is expected to trade gently offered against the yuan, with USD/CNY gradually easing toward 6.70 over the coming months.
Investors will monitor U.S. inflation data later on Tuesday and Nvidia’s earnings release after the market close for further directional cues.
