Treasury yields fall, dollar strengthens with investors weighing Fed moves

NEW YORK/LONDON – US Treasury yields retreated from an eight-month high on Thursday while the dollar strengthened against major currencies, as investors reevaluated the Federal Reserve’s interest rate policy for 2025 as the US economy shows signs of resilience.

The benchmark 10-year US Treasury yield fell 0.45 basis points to 4.689%. It had hit a peak of 4.73% on Wednesday, the highest since April 2024. The pound is headed for its biggest three-day drop in nearly two years.

A selloff in global bonds in recent weeks and worries about Britain’s economy has kept the pound under pressure and also has hit gilts especially hard, driving yields to 16-1/2-year highs.

On Friday, the closely watched US monthly payrolls report will provide clues on the Fed’s policy outlook. Markets are fully pricing in just one 25-basis-point US 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 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.

US stock markets were closed on Thursday to mark the funeral of former US president Jimmy Carter. US bond markets closed 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. Gains in healthcare and basic materials stocks were partially offset by declines in retailers. The pan-European STOXX 600 closed up 0.42%.

The US dollar index traded just under 109.54, a level it hit last week for the first time since November 2022. The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.12% to 109.15, with the euro down 0.18% at USD 1.0299.

Sterling was last down 0.44% at USD 1.2307, 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 settled up more than 1% as cold weather gripped parts of the US and Europe, boosting winter fuel demand.

Brent crude futures settled up 1% at USD 76.92 a barrel. US West Texas Intermediate crude futures settled up 0.82% to USD 73.92.

Gold prices advanced to a near four-week high, backed by safe-haven demand. Spot gold rose 0.27% to USD 2,669.38 an ounce, trading near its highest level since mid-December. US gold futures rose 0.77% to USD 2,685.00 an ounce.

(Reporting by Nell Mackenzie in London and Chibuike Oguh in New York; Editing by Mark Potter, Chris Reese, Alexander Smith, and David Gregorio)