Dollar and Treasury Yields Both Strengthen on Fed Rate Hike

Dollar and Treasury Yields Both Strengthen on Fed Rate Hike

U.S. Treasury yields and the dollar continued their synchronized strength following the Federal Reserve's interest rate hike. Assets sensitive to monetary policy are all betting on 'prolonged tightening.'

On the 16th (local time), the dollar index (DXY), which measures the dollar's value against six major currencies, had been hovering around 99.5 before the Federal Open Market Committee (FOMC) results were announced. Immediately after the Fed's decision, it jumped by 0.6 points to 100.21, setting a new high since July 31.

The upward trend continued, reaching 100.32 as of 6 PM, up 0.7 points from the previous close (99.61).

Scotiabank told Reuters that "the swap market is pricing in more than 0.90 percentage points of additional tightening by next summer," indicating that this interest rate path outlook itself is the background for the dollar's strength. TD Securities also stated that "if the dot plot leaves open the possibility of an additional hike in October, the dollar's strength could continue."

The yield on the U.S. 10-year Treasury note rose by 0.031 percentage points to 5.027% around the close of the regular session at 5 PM.

This level was the high first reached during intraday trading on the 15th, the day before the FOMC meeting. After showing a brief decline immediately following the rate hike announcement on the 16th, it rose back to the 5% level after the Fed Chair re-emphasized inflation risks.

The yield on the 2-year Treasury note, which is highly sensitive to monetary policy, rose by 0.075 percentage points to 4.736% today from the previous close, nearing its 52-week high of 4.742%.

In contrast, the yield on the 30-year Treasury note rose by only 0.01 percentage points to 5.361% from the previous close.

Jonathan Sugar of Goldman Sachs pointed to "long-term rates as one of the biggest risks in the market currently," citing the budget deficit and increased Treasury issuance driven by AI infrastructure as the background.