Dollar Gains Ahead of ECB Rate Hike
The US dollar is experiencing a surge in demand ahead of the European Central Bank's (ECB) rate hike, which is now seen as nearly certain. The market has fully priced in a 25 basis point hike next week and a strong probability (77%) of another hike in December. This has led to a strengthening of the US dollar against its major peers.
The US Treasury Secretary claims to possess asymmetrical information about the Bank of Japan's (BOJ) actions, but the market remains confident in the ECB's rate hike. The spread between US and Japanese 10-year yields is approaching 200 basis points, a level not seen since the end of Q1.
The potential for another US interest rate hike has been further fueled by investment-grade corporate issuance, which is expected to raise a record over $200 billion this month. This could put pressure on the US dollar and jeopardize efforts to weaken the yen.