On Wednesday, US equity markets slipped after two consecutive days of gains, as investors digested the latest earnings reports. Meanwhile, Treasury yields climbed as British inflation data solidified expectations of more interest rate rises by central banks.
The Dow Jones Industrial Average fell 0.23% or 79.62 points to close at 33,897.01. The S&P 500 lost 0.01% or 0.35 points to close at 4,154.52, while the Nasdaq Composite gained 0.03% or 3.81 points to close at 12,157.23.
Expectations for more interest rate hikes from central banks pushed yields higher after the UK reported a slight decline in inflation in March. Despite the drop, it still remains the only country in western Europe with double-digit inflation. Eurozone inflation also eased but remained stubbornly high.
The 2-year gilt yield was down 0.2 basis points at 3.820% after hitting 3.840%, its highest since March 9. Expectations for more hikes from the Bank of England (BoE) and European Central Bank (ECB) have been largely priced in by the market, while a 25-basis-point rate hike from the Fed is expected at its May meeting.
The yield on 10-year US Treasury notes was up 2.5 basis points to 3.597%, after reaching 3.639%, its highest since March 22. The 2-year US Treasury yield, which typically moves in step with interest rate expectations, was up 6.2 basis points at 4.261%.
A number of Fed speakers are scheduled to give commentary over the rest of the week before officials enter a blackout period on April 22 ahead of the Fed’s May 2-3 meeting.
Dollar Steadies on Fed Hike Expectations
In currency markets, the dollar steadied on Fed hike expectations, showing signs of stabilizing after five consecutive weeks of declines. The Dollar Index rose 0.256%, with EUR/USD down 0.19% to 1.0950. USD/JPY rose 0.52% to 134.81, while GBP/USD was last trading at 1.2436, up 0.10% on the day.
The dollar strength, in turn, helped curb crude oil prices, along with concerns that Fed rate hikes could dent growth and create a drag on demand. The WTI crude oil settled down 2.10% at $79.16 per barrel, while Brent was at $83.12, down 1.95% on the day.
Dollar and U.S. Bond Yields Impact Prices
Gold closed lower on Wednesday but remained above the $2,000 mark after falling below this psychological level in early trading for the first time since April 3. The fall came as the dollar and U.S. bond yields moved higher. Gold for June delivery lost $12.40 to settle at US$2,007.30/oz after earlier trading at an intraday low of $1,980.90.
The fall came as speculators bought the dollar in anticipation of the Fed continuing to raise interest rates with a 25-basis-point increase during the next FOMC meeting.
Ethereum (ETH) Falls Amid Broader Crypto Market Sell-off
In the cryptocurrency market, Ethereum (ETH) fell as much as 7% on Wednesday amid a broader sell-off. At New York closing, ETH fell 5.56% to trade at $1,975.53.
Bitcoin (BTC) fell almost 3% in under 30 minutes in early New York trading. Bitcoin, (BTC) fell back to test the $29K handle. It was last trading at around $29,210, down 3.75% for the day.
Meanwhile, altcoins too took a hit with Solana (SOL) and Polygon (MATIC) down 8% and 5%, respectively.
It was unclear what exactly led to the selloff overnight, but speculators are known to be sensitive to signs of the Fed rate tightening.