Dollar weakens further after US ECI data

The U.S. dollar rose to 0.9670 Swiss franc from 0.9630 Swiss franc and inched up to 1.2936 Canadian dollars from 1.2933 Canadian dollars.

In the statement, the Fed notes that the job market, housing and consumer spending have all improved.

The 0.2% rise in the employment-cost index Friday was the smallest in three decades, pointing to sluggish wage inflation. Once it raises it, other rates-for mortgages, auto loans and corporate borrowing-could rise, too.

Over the past month, the yield on the benchmark 10-year Treasury TMUBMUSD10Y, -3.14% has shed about 19 basis points, due to continuing flight-to-safety rallies. The bid-to-cover ratio, an indicator of demand, was the highest since November at 2.58, compared to a recent average of 2.50. That month’s contracts are trading at 0.67 percent, above the mid-point for second 25-basis-point increase from the Fed. First quarter growth was revised up to 0.6 percent from an initial reading of a 0.2 percent contraction.

Treasury prices, which move in the opposite direction of yields, were mostly off. Price declines were largest in 3-year and 5-year maturities, while benchmark 10-year Treasuries were last up 2/32 of a point in price, pushing the yield to 2.2697%. “It’s not a done deal, but we are still of the view that a September lift-off is on the cards, contingent on the view that the data out of the US continues to be firm”.

He thinks the Fed is very likely to begin raising rates in September.

“We’ll see dollar strength in the end, but it’ll be much more gradual and not as front-loaded as in the past”, Ulrich Leuchtmann, head of currency strategy at Commerzbank in Frankfurt, said by phone.

“Thus, today’s solid auction I don’t believe was a vote on whether the Fed will hike in September or not but more so a bet that the Fed will be well behind the curve for years to come”. That is because shorter-dated bond yields are pinned by the Fed’s short-term policy rate so they are more vulnerable to a shift in the Fed’s policy.

According to Naeem Aslam, chief market analyst of Ava Trade, it is true that after the statement, no press meet is scheduled and usually this downgrades the surprise element.

Mr. Lewis said he is skeptical the Fed can raise rates in September and added that Friday’s report is “a green light for investors to move out of cash and into bonds”.

The yield on two-year Treasury notes, at 0.73 percent on Thursday, is just a tick from its highest level since April 2011 and is more than three times higher than it was in May 2013.

Concerns that the massive fall in Chinese share prices since last month could put additional drag on an already-slowing Chinese economy have hurt many emerging market shares and commodities that had long benefited from rapid expansion of the world’s second largest economy.

U.S. economic growth data was also released this week.

The report, issued by the National Association of Realtors, comes after five straight months of gains.