Oil Shock Sends Global Yields Soaring Amid US Inflation Fears
Currency markets remained subdued on Thursday as investors grappled with the implications of rising oil prices and global bond yields. The energy sector was hit hard, with Brent crude futures breaching $100 a barrel for the first time in recent history.
Iran and the US have engaged in a wave of attacks on shipping, threatening to disrupt energy supplies from the Middle East. This has led to higher inflation pressure, causing global bond yields to rise. The 10-year Treasury yield hit its highest level since 2023, with benchmark yields increasing as well.
The greenback found some relief, but only marginally, leaving the euro and sterling slightly weaker. The Japanese currency's rally also paused ahead of an expected Bank of Japan rate hike next week. Attention is now focused on US inflation readings, including producer prices later Thursday and CPI on Friday, which will provide clues for the Federal Reserve's next policy move.
The European Central Bank is set to raise interest rates for the second time this year, while the Bank of Japan is expected to hike rates to 1.25% on September 18 and then to 1.75% in the second quarter of 2027. Traders are now pricing a roughly 60% chance of a Federal Reserve rate hike this month after Friday's stronger-than-expected nonfarm payrolls report.