In the final two months of last year, market players were convinced that the disinflation narrative is going to prevail and that major central banks are going to cut rates much sooner than anticipated. That resulted in aggressive pricing for rate cuts, which saw the dollar sink heavily alongside Treasury yields while risk trades ripped higher.
It settled on that note but on the first day of the new year, we’re running it all back again in reverse mode. The dollar is gaining solid ground now in European trading while stocks are seeing their opening day optimism get dashed quite badly.
EUR/USD is down 0.7% to 1.0970 while USD/CHF is up 1.1% on the day to 0.8501 currently. This comes as 10-year Treasury yields are holding higher by nearly 9 bps to 3.951%. As such, USD/JPY is also keeping in a solid spot as it is up 0.7% to 141.80 on the day.
It is just one of those things that tells you that if you’re thinking 2024 is going to be as straightforward as what markets have been saying at the end of last year, it certainly isn’t going to progress that smoothly. And that’s a big lesson that we already learned last year. Are we in for a repeat in 2024?