Treasury yields retreat, dollar strengthens with investors weighing Fed moves

By Chibuike Oguh and Nell Mackenzie

NEW YORK/LONDON (Reuters) -U.S. Treasury yields retreated from an eight-month high on Thursday while the dollar strengthened against major currencies, as markets weighed the Federal Reserve's interest rate cut moves amid U.S. economic resilience.

The benchmark 10-year U.S. Treasury yield fell 0.45 basis points to 4.689%. It had hit a peak of 4.73% on Wednesday, which was the highest since April 2024.

On Friday, the closely watched U.S. monthly payrolls report will provide clues on the Fed's policy outlook. Markets are fully pricing in just one 25-basis-point U.S. rate cut in 2025.

"Yields have come down a little bit heading into the payroll number on Friday and it's indicative of where the level of concern is, which is that maybe the move in yields has been overdone," said Drew Matus, chief market strategist at MetLife (NYSE:MET ) Investment Management in New Jersey.

Minutes of the Fed's December policy meeting released on Wednesday showed officials were concerned President-elect Donald Trump's proposed tariffs and immigration policies may prolong the fight against inflation.

A market selloff in Treasuries continued on Wednesday after a CNN report that Trump was considering declaring a national economic emergency to provide a legal justification for a series of universal levies on allies and adversaries.

U.S. stock markets were closed on Thursday to mark the funeral of former U.S. president Jimmy Carter. U.S. bond markets close early at 2 p.m. ET (1900 GMT).

"I put the fair value 10-year yield at 4.50% and yet we're still at 4.66% heading into a report that will either show continuing strength in the labor market, in which case the rate cuts aren't the right thing to be doing, or show labor weakness and will ratify the Fed's view of the world against the backdrop of inflation that remains elevated and a high degree of uncertainty in policy and economic outcomes," Matus said.

European shares finished higher after paring early losses, helped by gains in healthcare and basic materials stocks, which were offset by declines in retailers. The pan-European STOXX 600 closed up 0.42%.

The U.S. dollar index traded near 109.54, its highest level since November 2022, which it hit last week. The dollar index , which measures the greenback against a basket of currencies including the yen and the euro, rose 0.14% to 109.17, with the euro down 0.18% at $1.0299.

The pound headed for its biggest three-day drop in nearly two years, under pressure from a selloff in global bonds that has hit gilts especially hard, driving yields to 16-1/2-year highs, as concern mounts about Britain's finances.

Sterling was last down 0.48% at $1.2303, having touched its lowest since November 2023 earlier in the day. 

China's yuan steadied near a 16-month low against the dollar as the nation's central bank announced a record amount of offshore yuan bill sales to support the currency.

Oil prices gained more than 1% as cold weather gripped parts of the U.S. and Europe, driving up winter fuel demand.



Brent crude futures were up 1.29% at $77.14 a barrel. U.S. West Texas Intermediate crude futures gained 1.15% to $74.16.

Gold prices advanced. Spot gold rose 0.31% to $2,670.09 an ounce. U.S. gold futures rose 0.62% to $2,681.00 an ounce.

Source: Investing.com