Treasury Yields, Dollar Edge Up Ahead of Fed Rate Decision — Market Talk

1113 GMT - U.S. Treasury yields rise and the dollar is also slightly firmer ahead of the Federal Reserve's interest-rate decision. The Fed is expected to stay on hold, but markets anticipate tightening in December. "That continues to support both the dollar and Treasury yields," The Revacy Fund's Zaheer Anwari says in a note. Fed Chairman Kevin Warsh's deliberate move away from giving too much forward guidance, and the absence of new projections at this meeting, "means the press conference is likely to matter more than the decision itself," Anwari says. The DXY dollar index is up 0.1% at 102.417. The 10-year Treasury yield rises 1.4 basis points to 5.005%, according to Tradeweb. ([email protected])1044 GMT - Expectations for a fiscally responsible U.K. budget at 1230 GMT leaves sterling at risk of falling if it fails to deliver, Monex Europe analysts say in a note. "With consensus already supportive for [U.K. government bonds], the asymmetry lies in disappointment: credibility concerns over deferred spending choices could well see sterling downside pressure build, while a disciplined package is largely priced and would offer only modest relief." The Federal Reserve's decision at 1800 GMT is also capable of overriding any budget reaction, keeping sterling's risks "skewed lower" against the dollar into month-end, they say. Sterling falls 0.1% to $1.3292 after hitting a 12-day low of $1.3269 earlier, according to LSEG. ([email protected])1014 GMT - The Canadian dollar has limited scope to rise if the Bank of Canada raises interest rates in a decision at 1345 GMT as signalled by BOC Governor Tiff Macklem, MUFG Bank's Derek Halpenny says in a note. The market prices a 76% chance of a 25 basis points rate increase, LSEG data show. That leaves some room for a rate rise to surprise markets, he says. However, Macklem's message is unlikely to keep markets confident on expectations for a prolonged period of rate increases with 100bps priced by September next year, he says. Market participants will also be wary ahead of the Federal Reserve's decision at 1800 GMT, he says. The U.S. dollar trades steady at 1.4054 Canadian dollars. ([email protected])1013 GMT - The Federal Reserve's policy decision at 1800 GMT is the most important immediate catalyst for bitcoin, Zaye Capital Markets analyst Naeem Aslam says in a note. The Fed is expected to leave interest rates unchanged but the accompanying policy statement and press conference will be particularly important as investors are increasingly focused on whether slowing employment growth and moderating industrial demand justify a more accommodative policy outlook, he says. Any signals about future tightening could strengthen the dollar, push Treasury yields higher and increase selling pressure across cryptocurrencies, he says. Conversely, "guidance indicating greater concern about economic slowing could encourage renewed institutional allocations, improve liquidity expectations and support bitcoin's recovery." Bitcoin rises 0.9% to $81,416, LSEG data show. ([email protected])0916 GMT - The U.K. budget announcement could offer relief to gilts, causing yields to fall, ING's Michiel Tukker says in a note. "We do think a bit of a relief rally could take place as the budget turns out to be more boring than [Prime Minister Andy] Burnham's ambitions would imply," he says. ING expects 10-year gilt yields to edge lower as markets price out government spending suprises, Tukker says. Ten-year gilt yields are last up 2.3 basis points at 5.364%, Tradeweb data show. ([email protected])0910 GMT - The dollar's strength should persist even if Federal Reserve Chairman Kevin Warsh refrains from sending clear signals about further tightening in December at Wednesday's meeting, Commerzbank's Volkmar Baur says in a note. "Rates are likely to remain unchanged tonight, and if Warsh sticks to his usual line, as seems likely, the press conference should contain few, if any, clues about December." However, as long as nothing is said to dampen market expectations for a rate rise in December followed by two increases next year, the dollar is likely to remain firm, he says. The decision is at 1800 GMT. The DXY dollar index rises 0.1% to 102.371 after earlier reaching a two-week high of 102.491.([email protected])0846 GMT - The euro has room to weaken further on French fiscal worries as it hits a 17-month low against the dollar, Danske Bank's Jesper Fjarstedt says in a note. "Markets are starting to doubt the near-term case for European Central Bank rate hikes, which marks a stark shift from September when tomorrow's meeting was priced as a nearly certain hike." Markets expect the ECB to leave rates unchanged Thursday and a December rate-rise is less than 80% certain, he says. Danske still expects a December move but tightening to end then. If correct, markets are pricing the ECB's policy rate around 45 basis points too high in one year's time, he says. The euro falls to as low as $1.1111. ([email protected])0843 GMT - The Bank of Thailand is likely to maintain its policy rate at 1.00% in the near-term, before restarting the easing cycle in 2027, Capital Economics' Jack Piper says in a note. Noting that BOT said overall growth is "below its potential," he adds that the central bank's main concern is the weak economy. Thailand has been hit hard by rising global energy prices and has not benefited from increasing artificial intelligence-related exports to the extent of some Asian economies, it says. CE expects the BOT to hold rates steady through end-2026 and deliver one final 25bp cut, compared to other analysts, who mostly expect rates to remain on hold throughout 2027.([email protected])0836 GMT - Yields on U.K. government bonds, or gilts, advance along with eurozone and U.S. peers as rising oil prices revive inflation concerns. Gilt investors are focused on the U.K. budget due around 1230 GMT and the Debt Management Office's 2026-2027 financing remit which will be released after that. Most analysts expect a cautious budget which should leave gilt markets relatively calm. Meanwhile, The Wall Street Journal reported that the U.S. could be preparing to resume attacks on Iran after the midterm elections due on November 3, raising fears about fresh energy supply disruptions. Brent Crude rises 1.2% to $115.2 a barrel. Ten-year gilt yields rise 2.6 basis points to last trade at 5.367%, Tradeweb data show. ([email protected])0817 GMT - The U.K. budget at 1230 GMT could have a positive impact on sterling and U.K. government bonds, ING's Chris Turner says in a note. The spread between yields in U.K. and German government bonds could narrow, highlighting that the U.K. is one of the few G-7 economies heading in the right fiscal direction into 2027 with forecasts for the budget deficit inside 4% of GDP as higher inflation drags more workers into higher tax brackets, he says. "Barring any surprise budget giveaways that hit gilts, it looks as though euro-sterling can stay heavy and potentially nudge down to the 0.8315 area." The euro rises 0.1% to 0.8370 pounds after hitting a 17-month low of 0.8357 overnight, LSEG data show.([email protected])0804 GMT - Sterling turns modestly lower versus the euro and hits a 12-day low against the dollar as investors look ahead to the U.K. budget and Federal Reserve's decision later. While investors exercise caution ahead of the budget at 1230 GMT, the U.K. government has promised to stick to the fiscal rules. Meanwhile, the Fed is widely anticipated to leave rates unchanged at 1800 GMT but markets will be looking for any signals that support expectations for future tightening. Sterling falls 0.1% to as low as $1.3283. The euro rises 0.1% to 0.8367 pounds, having reached a 17-month low of 0.8357 overnight, LSEG data show. ([email protected])0757 GMT - A fiscal buffer of around 15 billion pounds ($20 billion) should appease investors in U.K. government bonds, or gilts, Ebury's Matthew Ryan says in a note. "Investors will want to see the headroom rebuilt to 15 billion pounds or more, and spending plans that look credible," he says. A shortfall on these could revive fiscal concerns and weigh on gilts and sterling, Ryan says. The fiscal buffer is the amount the government can increase spending or lower taxes without breaking its own fiscal rules. ([email protected])