Oil Surge Pushes Yields Higher Ahead of Fed Decision

Market Wrap-up: Yields climb as markets await Fed guidance 

US 10-year Treasury yields rose to their highest level since 2007 on 15 September as selling pressure on US government bonds increased ahead of the Federal Reserve’s interest rate decision.

The move came as oil prices have risen by more than 20% this month, adding to concerns over higher energy costs and the inflation outlook.

Saudi Arabia was reportedly forced to cancel some future shipments to European customers after drone attacks led to the closure of a key oil export pipeline.

In the latest session, US West Texas Intermediate (WTI) crude rose 4.4% to $105.83 a barrel, its highest closing level since 19 May. Brent crude, the international benchmark, gained 2.9% to $108.75 a barrel.

However, US Energy Secretary Chris Wright told CNBC on 15 September that he expects the pipeline to resume operations within a few days.

Meanwhile, regional tensions remained elevated, with Iran-backed Houthi forces in Yemen continuing attacks against Saudi targets.

The US Dollar Index (DXY) rose to 99.60. Prolonged higher energy costs could feed through to broader consumer price pressures, while elevated oil prices may influence expectations for the Fed’s monetary policy path.

The stronger US dollar coincided with a 0.3% decline in spot gold to $4,285.88 an ounce, as the metal’s dollar-denominated pricing makes it more expensive for holders of other currencies.

US equities also extended their decline, with the Dow Jones falling 0.63%, the S&P 500 losing 0.45%, and the Nasdaq Composite declining 0.78%.

According to the CME FedWatch Tool, traders are pricing in a 92.5% probability of a 25-basis-point Fed rate increase at this meeting, following August inflation data that remained well above the central bank’s 2% target.

With the move largely anticipated by markets, investor attention is likely to be less focused on the rate decision itself and more on the updated economic projections, the dot plot and Chair Kevin Warsh’s guidance on the potential path for monetary policy.

Looking ahead to today, markets will monitor new US data ahead of the Fed meeting, including Retail Sales and Import & Export Prices. UK CPI data and speeches from ECB policymakers will also be closely watched.

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DXY:

Key takeaway:

• DXY rose to 99.60 amid firmer rate expectations.
• Focus shifts to the Fed’s policy guidance.

Technical Outlook:

• Daily Bias: Bullish with Correction Risk
• Support: 98.96
• Resistance: 99.73

Gold:

Key takeaway:

• Spot gold fell 0.3% to $4,285.88.
• Higher yields and a stronger dollar weighed on prices.

Technical Outlook:

• Daily Bias: Bearish with Rebound Potential
• Support: 4,253 
• Resistance: 4,402

Oil:

Key takeaway:

• WTI climbed 4.4% to $105.83, while Brent rose 2.9% to $108.75.
• Supply concerns kept oil prices elevated.

Technical Outlook:

• Daily Bias: Bullish

• Support: 100.52  
• Resistance: 106.76

Calendar Watch:

• US: Retail Sales, Import & Export Prices, followed by the Fed interest rate decision, updated economic projections and dot plot.
• UK: CPI inflation data.
• Eurozone: Speeches from ECB policymakers.

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