3.00%? – US Yields Push Dollar Higher

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Market Drivers April 23, 2018
US 10Y at 2.99%
EZ PMI beats
Nikkei -0.33% Dax -0.29%
Oil $67/bbl
Gold $1328/oz.
Bitcoin $8895

Europe and Asia:
EZ PMI 55.2 vs. 54.9

North America:
USD Existing Homes Sales 10:00

US 10 year yields came within a whisker of the 3.00% handle in early London dealing today driving dollar higher across the board.

USDJPY broached the 108.00 figure for the first time in 2 months hitting a high of 108.21 before easing off a bit. The rally in US yields has been building for a week as hawkish rhetoric from Fed officials kept the pressure on rates despite any clear signs of inflation or growth.

The Fed is clearly now the most aggressive central bank in the G-11 universe as it tries to normalize monetary policy after years of QE and the market has finally taken notice of the widening interest rate differentials. The greenback was also helped by subsiding geopolitical concerns as trade conflicts and political conflicts with North Korea eased over the past several days, allowing traders to focus on macro fundamentals.

The breakout above 108.00 looks to be a significant signal as this broke two months of resistance in the pair and will likely squeeze the late shorts as the pair tries to push towards the key 110.00 level over the next several weeks. Of course, fresh trade turmoil out of the White House could scuttle the dollar’s rally, but if there is no more aggravation on trade policy front, the markets will continue to focus interest rate differentials and will likely push the greenback higher on momentum flows.

The data docket tonight is light, with overnight reports showing a slightly better than expected EZ PMI readings at 55.2 vs, 54.9. Still, the slowdown in EZ growth is likely to keep ECB stationary for the foreseeable future and the markets anticipate nothing but dovishness from ECB monthly presser this Thursday. The EURUSD is drifting towards the 1,2200 figure and if US yields jump above the 3.00% level the pair could test that handle as the day proceeds.

Boris Schlossberg
Managing Director

One thought on “3.00%? – US Yields Push Dollar Higher”

  1. Hello, the real elephant in the room, which nobody dares to address, is the fact that the US 2y has a very much higher yield than the Italian 10y and Spanish 10y.. For how much longer, now when interest rates are on the rise and ECB has accumulated above 40% of all Eurozone gov debt on its balance sheet?
    Bloomberg reported that dollar bulls are extinct!
    Already some 30 govs are defaulting on its debts. When interest rates increase another 1% then it will be about 100 countries defaulting, At 2,5% it will be 300 countries.
    USD and US equities will be the safe heaven for Big Cap flows in the Sovereign Debt crisis contaigion. Later also gold, but only after USD has surged.
    Energing markets have massive USD denominated debt. Even China has 250% debt to GDP ratio, yes 250%!?!
    Nobody in media address this credit bubble in gov debt outside US. Everyone only looks on US debt, which relative to its economy and population is rather OK. EU, Japan and EM are much worse off.
    Best regards, HJ

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