Pound Weakens

This week, the financial markets have shown a notable shift with the U.Sdollar making significant gains against other major currencies, particularly the British pound, which has been under considerable pressureThe dollar index has been charting a path of steady ascent, notably reaching levels that herald an ongoing trend, as it appears poised to advance for the sixth consecutive weekInsights from analysts indicate a forecast of 160,000 new non-farm jobs being added in December by the U.Seconomy, a strong indicator that has bolstered market confidence in the dollar's resilience.

In the Asian trading sessions on Friday, the U.Sdollar stood unflinchingly, akin to a towering behemoth within the foreign exchange marketNotably, this surge can be attributed to rising bond yields that have piqued investor interest in dollar-denominated securitiesAs the bond yields continue their upward trajectory, they render the dollar increasingly attractive, igniting a flow of capital into these financial instruments

Furthermore, a prevailing sense of optimism surrounds the U.Slabor market, with investors collectively banking on positive employment figures that could further strengthen the dollar.

The week saw the USD/JPY pair exhibiting robust performance, climbing by 0.5% to reach an exchange rate of 158.405 yenThe dollar did not stop there; it also appreciated nearly 1% against the British pound (GBP/USD), which faced a significant downturnFactors such as the persistent decline of British government bonds, highlighted by a sharp 12 basis point spike in the yield of 10-year U.Kgovernment bonds over a single day, combined with concerns surrounding the fiscal health of the British economy, have been detrimental to the poundOnce standing strong, the pound has alarmingly dropped to its lowest point in 14 months.

Meanwhile, the dollar's performance against the euro (EUR/USD) maintained relative steadiness at approximately 1.0289, showing slight upticks against both the Australian and New Zealand dollars as well.

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• Bond Yields Hover at a Decade High

dollar index (DXY) suggest that it could mark six weeks of consecutive gainsIf achieved, this would constitute the longest sustained rally since its record-setting 11-week rise in 2023. The sustained strength of the dollar is notably anchored by the comparative advantages enjoyed by the U.Seconomy, characterized by a resilient labor market, steady consumer spending patterns, and robust corporate earnings.

As for the dollar index, it remained stable during Asian trading hours at 109.33, reflecting an increase of 0.4% over the week.

Chris Turner, the global market head at ING, opined that there's an air of skepticism regarding the dollar's current rally, suggesting that it could potentially retract some of its recent gainsHe elaborated on the issue of reduced long positions in the pound, and cited the imminent U.Snon-farm payroll data release as a catalyst for the dollar's upward potential.

Even amidst the risk of profit-taking, the dollar index has established solid support below 108 earlier this week, suggesting a resilience among traders.

The British pound continued to face relentless selling pressure, depreciating by 0.23% to settle at 1.2278 dollars

Earlier in the week, the pound was reportedly down to 1.2239 dollars, a level not seen in over a year, unveiling the prevailing fears surrounding the economic outlook and fiscal stability of the U.KMeanwhile, the Australian and New Zealand dollars have found themselves wading through tricky waters, creeping close to multi-year lowsThe most recent rate for the Australian dollar against the U.Sdollar sits at 0.61905, teetering precariously close to its 2022 low of 0.6170. This decline is heavily influenced by global economic uncertainties and Australia's slow economic growth.

The New Zealand dollar is similarly on edge, testing its own 2022 low of 0.5512 dollars, with the most recent exchange rate being 0.5587.

As for the upcoming non-farm payroll data...

Expectations are set for December non-farm employment figures to reflect an increase of 160,000 positions, dropping from November's figure of 227,000. The unemployment rate is anticipated to hold steady at 4.2%, a sign of a stable job market.

Should any indicators point towards a stronger-than-anticipated data release, the Federal Reserve may reassess its stance on interest reductions, potentially contributing to a fresh wave of selling in the already jittery bond market.

The night before, Philadelphia Federal Reserve President Patrick Harker maintained that he still expects the Fed to lower rates, but emphasized that an immediate move is not necessary.

Market predictions for cuts in U.S

interest rates have dwindled to about 40 basis points for 2025, with growing concerns about inflation partly responsible for hiking long-term yields.

Alexis Lavergne, a fixed-income expert from Henderson Global Investors, commented that central banks across the globe hint at impending rate cuts, which the market interprets as a sign of effective inflation management.

He elaborated on potential risks that market participants may have to confront, particularly with regard to the fiscal policies aimed at stimulating growth which could, in turn, generate inflationary pressures.

U.S10-year Treasury yields have risen approximately 9 basis points this week, reaching levels of 4.68%. Since mid-September, these yields have surged by 96 basis points.

Conversely, the U.Khas seen its 10-year government bond yields climb by 22 basis points to 4.805% this week.