On Tuesday earlier, weak dollar was the market theme in the financial market. However, after the economic data announcement in the US session, the dollar obviously regained its loss. A better than expected ISM manufacturing figures restored the confidence over the dollar, and further improved the market sentiment. The three major Wall Street indexes rose, of which the Nasdaq jumped nearly 1.4%.
The US ISM manufacturing index was 56 in August, showing the manufacturing activity accelerated in the US. But, while the data triggered risk appetite, there is still buying interest in US Treasury, which is deemed as safe-haven asset, making the 10-year U.S. bond yield falling from 0.73% around to 0.67% level.
The US bond market move may be reflecting a more aggressive approach from the Federal Reserve. As the policy framework has been shifted, the Fed will keep the low rate longer. Such view was reinforced on Tuesday. The Fed Governor Lael Brainard said that the Fed may need to implement more stimulus policies to boost the economic recovery amid the coronavirus pandemic.
The US Treasury yields fell, following Brainard’s speech. Investors believe that the “stimulus” would likely be targeting more bond buying.
The euro once reached the 1.2 mark which is its highest level in more than two years. However, in the middle of the US session, some comments from the ECB officials caused a reversal. They expressed concerns about the recent uptrend of the euro, triggering profit taking over EUR/USD, pushing the price back to the level near 1.19.
ZFX analyst Jacob Leung said that on Tuesday, the trends of markets were a bit divergent. A stronger dollar, stronger stock markets were not really in line with the drop of the US bond yield, especially based on an easing Fed policy expectation. Positive ISM data and the drop of euro may be the factors that intervened the whole market. In the short term, the rebound of the dollar may still be regarded as a correction/adjustment, meaning no fundamental change.
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