On January 2, local time, the US stock and US bond markets fell, the worst start in nearly two decades.

On that day, US bond yields rose across the board and US bond prices plunged. Among them, the 2-year Treasury yield rose 7.5 basis points to 4.333%, the 10-year Treasury yield rose 5.4 basis points to 3.936%, and the 30-year Treasury yield rose 4.5 basis points to 4.075%.

The dollar index rose strongly on the back of higher Treasury yields. Choice data shows that as of the close of local time on January 2, the dollar index exceeded 0.9% to 102.25. Wall Street was under broad pressure, with the Dow ending with only a modest gain among the three major indexes.

Market participants said the surge in US yields came as a flood of corporate bond issuance weighed on spreads, while traders pared bets on a big Fed rate cut this year. Gennady Goldberg, head of U.S. rates strategy at TD Securities, said supply factors were behind the move as a large number of corporate bond auctions had already been announced for the day.

"Investors realise they may have been too aggressive in their expectations of multiple rate cuts this year from the Federal Reserve, the European Central Bank and so on." Favad Razakzada, senior analyst at Gain Group, said investors' reduced bets on deep interest rate cuts by central banks in major developed economies helped support the dollar, while dragging down index futures.

According to CME Group's Fed Watch tool, the market is now pricing in an 89.1% probability that the Fed will hold rates steady at its meeting in late January. The probability of keeping rates unchanged in March is 21.4 percent, and the probability of a cumulative 25 basis point cut is 70.4 percent.

Us non-farm data and the minutes of the Fed's monetary policy meeting due to be released this week will provide more support for the market to judge the Fed's interest rate path. Fawad Razakzada said investors' views could change again after the data.

In fact, with US inflation falling more than expected in recent months, the Federal Reserve has unexpectedly "turned pigeon", and market interest rate cut expectations are hot. As for currencies, although the dollar index has reversed months of weakness with a rise to start the year, analysts generally expect the dollar to continue to weaken.

The foreign exchange team at China International Capital Corporation (36.850, -0.43, -1.15 percent) said it expects the dollar to weaken gradually. The recent easing of inflation pressure in the United States has significantly increased the market's interest rate cut expectations for the Federal Reserve in 2024. If the U.S. labor market weakens further in the future, the market's expectation of the Federal Reserve's interest rate cut may continue to deepen, which will lead to the trend of the dollar to fall back. Moreover, the longer the Fed keeps interest rates high, the evidence of a weakening US real economy will grow. However, considering that the decline of the dollar in December 2023 has already overdrawn some expectations, the decline of the dollar index in January this year may be reduced.

In terms of the RMB exchange rate, with the weakening of the US dollar and the further convergence of the interest rate spread between China and the US, the external environment for the RMB exchange rate has continued to improve. Analysts believe that the easing of the external environment combined with the continued recovery of the domestic economy and the continued force of the stable exchange rate policy, the RMB exchange rate is expected to rise steadily.

Guo Jiayi, chief foreign exchange researcher at Industrial Research, said that looking ahead, the yuan is expected to maintain a steady rise before the Spring Festival. From the perspective of the exchange order to be settled and the decline of the settlement rate in recent months, the settlement power still has potential. The foreign exchange group of the Research Department of China International Capital Corporation believes that the pressure of short-term fluctuations in the RMB exchange rate cannot be ignored, and it is expected that the stable exchange rate policy will continue to exert force, and will play a positive role in the expected stability of the RMB exchange rate.