US yields ease as CPI caution offsets Oil rally
- US Treasury yields ease despite WTI reaching seven-day highs.
- CPI and PPI data could reshape Fed hike expectations.
- Soft labor signals keep investors cautious before inflation releases.
US Treasury yields eased on Tuesday as most investors remain cautious, awaiting the release of US inflation figures and the resolution of the US-Iran conflict, which has encountered hurdles.
US yields edge lower as traders await inflation data, jobless claims
Oil prices continued their advance for two straight days, with West Texas Intermediate (WTI), the US crude benchmark, hitting a seven-day high of $84.61. Despite this, the US 10-year benchmark note dipped one basis point to 4.69%.
July’s Consumer Price Index (CPI) is expected to decline slightly from 3.5% to 3.4% year over year. The core CPI, excluding volatile items, is also forecasted to decrease from 2.6% to 2.5% YoY. Additionally, on August 13, the Producer Price Index is similarly projected to soften.
US economic data showed the ADP Employment Change 4-week average at 8.25K jobs. Meanwhile, the previous week's figure was revised downward by 4K, from 11K.
Last week’s US Nonfarm Payrolls data prompted investors to reduce their Fed hawkish bets for 2026. Prime Terminal data indicate that the odds of the Fed keeping rates unchanged at the September meeting are 65%, while the odds of a 26-basis-point rate hike are 35%.
The US Dollar Index (DXY), which tracks the performance of the buck’s value against six currencies, steadied at 99.81, unchanged.
In addition to the US inflation data release, traders are also watching Initial Jobless Claims for the week ending August 8 and the University of Michigan (UoM) Consumer Sentiment.
US 10-year Treasury yield chart
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
