US Yields Beyond 3% – Buck Pushes Higher

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Market Drivers April 25, 2018
UST at 3.03%
UK works on Brexit/Irish issue
Nikkei 0.28% Dax -1.61%
Oil $68/bbl
Gold $1325/oz.
Bitcoin $9300

Europe and Asia:
No Data

North America:
No Data

US yields pushed through the 3.00% level today hitting a high of 3.03% which helped greenback extend its gains in Asian session trade, but the single currency ran into some profit taking in early European dealing as both euro and cable found some support.

US yields continued to be the story today as rates ratcheted higher helping the buck extend its gains. USDJPY hit a high of 109.26 as dollar rallied across the board. But by morning European dealing the rise in US yields stalled and traders quickly booked profits stopping the rally.

With no data on the calendar today, yields will be the main focus of trade in FX as markets slowly come to the realization that the interest rate differential between US and the rest of G-11 universe is only going to widen. This week’s strong US housing data and rise in consumer sentiment readings alleviated concerns that the US economy may be slowing allowing the buck to break out to fresh multi-week highs against most of the majors.

Tomorrow, the ECB meeting could extend the buck’s gains against the euro even further, if ECB chief Mario Draghi acknowledges the recent slowdown in the region and suggests that rates are unlikely to rise before 2019. Generally, Mr. Draghi tends to follow a decidedly neutral tone and prefers to focus on the intermediate term horizon ignoring the near term data, but if he notes that the balance of risks is now skewed slightly to the downside the market is likely to push the euro through the key support of 1.2150 breaking the levels that have held since February which will then set up a run towards the key 1.2000 figure.

With no discernable inflation and a more competitive trading climate, there is no reason why Mr. Draghi would not welcome a move lower in the euro, so unless he proves to be surprisingly sanguine the path of least resistance for the pair is lower.

Boris Schlossberg
Managing Director

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