Dollar Surges to 3.05 Shekels as US Bond Yields Hit 17-Year High

The dollar strengthened against the Israeli shekel on Tuesday, reaching 3.049 shekels, amid a broader global rise in the dollar's value and a significant jump in U.S. bond yields. This surge in yields, particularly for 10-year Treasury bonds which hit 5.026%, their highest level since 2007, is occurring ahead of the U.S. Federal Reserve's interest rate decision, widely expected to include a 25 basis point hike.

The rising yields are attributed to persistent inflation concerns, exacerbated by recent U.S. inflation data remaining well above the Fed's 2% target and a sharp increase in oil prices, with Brent crude exceeding $105 per barrel and WTI above $101. The market is pricing in over a 92% probability of the Fed raising its target interest rate to a range of 3.75% to 4.00%.

Analysts suggest the Federal Reserve may be feeling pressured to raise rates to maintain credibility and calm bond markets, even if broader economic data doesn't fully support such a move. Some economists, like Alex Zibzibinsky from Meitav, believe the Fed has "painted itself into a corner" and might implement "unnecessary and even harmful" rate hikes to appease the bond market. He noted that while overall U.S. inflation has risen, core inflation has slightly decreased, with energy prices being the primary driver of the increase.

Despite the expectation of a rate hike, some experts caution that it may not be enough to curb the rise in long-term bond yields. Komal Sri-Kumar warned that high energy prices and tariffs continue to fuel inflation, potentially causing the 10-year Treasury yield to exceed 5% again and invert the yield curve. The Federal Reserve's upcoming statement will be closely watched for signals on future monetary policy amidst these complex economic pressures.