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US Treasury Yields Fall as Markets Reassess Fed Rate Cuts and Election Risks; Dollar Remains Stable
US Treasury yields fell for the second day in a row as investors reassessed expectations for interest rate cuts by the Federal Reserve (Fed), taking into account risks associated with the approaching presidential election.
The US dollar, meanwhile, remained firm, poised to record a fourth straight weekly gain after an earlier spike in yields fueled risk-off sentiment, prompting traders to reduce bets on aggressive Fed rate easing.
Meanwhile, differences of opinion among European Central Bank (ECB) policymakers reflect differing views on eurozone markets, adding another layer of complexity to global market sentiment.
Upcoming US economic data, including the often-hot monthly payrolls report, is expected to play an important role in determining the market's direction and provide more clues about potential Fed moves.
Current polls show a tight race between Donald Trump and Kamala Harris adding uncertainty to the market's outlook.
Regardless of the election results, the dollar index is expected to weaken in the medium term, assuming that the Fed will continue to cut interest rates to support the economy.
In Japan, the yen remains in a sideways range against the dollar ahead of parliamentary elections this weekend, where the ruling coalition risks losing its majority in the lower house for the first time since 2009.
This potential power shift could put downward pressure on the yen and Japanese equity markets.
The governor of the Bank of Japan (BOJ), Kazuo Ueda, reiterated his dovish approach by stating that an interest rate hike is unlikely in the near future.
With the yen already nearing a multi-month low, Ueda's remarks lent further support to expectations of continued accommodative policy.
In the US money market, there are now strong expectations of a 25 basis point cut in interest rates by the Fed next month, with traders anticipating a total of 43 basis point cuts by the end of the year.
This projection reflects the balance between an economy that is still showing resilience with the Fed's cautious approach amid fiscal uncertainty and geopolitical tensions.
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