Softer Yields = Softer Dollar

Today’s Highlights

• * The US dollar is trading moderately lower today with sterling, the yen and the Australian dollar picking up minor gains.
• * China’s signaling for the need to address the rise in commodities cooled the market with iron futures, copper, and steel rebar futures all declining.
• * The Northern Ireland Democratic Unionist Party is choosing a new leader between two candidates who are disapproving of the Northern Ireland Protocol that is a source of concern regarding custom checks between Northern Ireland and the UK.
• * The Bank of England’s Governor Bailey stated that inflation was being monitored carefully while noting the increased readings in the US.
• * The US reports a few data points today including import/export prices which are expected to rise, an expected reading in the capacity utilization of 75% for April, and the University of Michigan’s consumer survey which also asks about long term consumer inflation expectations which this year has been at 2.7%-2.8% its highest reading since 2014.

The surge in consumer prices reported on Wednesday saw rates jump and the dollar push higher. Stronger than expected producer prices yesterday, and news of wage increases (average 10%) at Mcdonalds and for 75,000 people Amazon wants to hire, saw rates ease and the dollar’s upside momentum stall.

Before the week draws to a close, the US reports April retail sales and industrial production figures. US stocks recovered smartly from the stomach-clenching sell-off on Wednesday, which helped lift sentiment in Asia and Europe. The largest markets in the Asia Pacific advanced mostly 1%-2.3%.  New social restrictions in Singapore as the contagion reached a 10-month high saw the Strait Times Index drop 2.5%. Europe’s Dow Jones Stoxx 600 recovered yesterday, though finished off less than 0.2%, and helped by stronger gains in consumer staples and financials, is posting modest gains today. US future indices are trading broadly higher.

The US 10-year yield briefly poked above 1.70% yesterday for the first time in a month but pulled back to around 1.64% now, shrugging off a lukewarm 30-year bond auction (despite higher rate, low bid coverage). The softer US yields were are doing little to European benchmark 10-year yields, which are extending yesterday’s push to the year’s highs.

As go US interest rates, so goes the dollar.  After rallying on Wednesday, its gains were pared against most of the major currencies and remains under modest pressure today, with the Norwegian krone leading the way (~+0.85%), while sterling, yen, and the Australian dollar lagging (~+0.1%). On the week, only sterling is higher (~+0.50%), while the Antipodeans and Scandis led the decline (~-0.8% to -1.3%).

Emerging market currencies are also trading higher today, led by eastern and central European currencies.  After falling in the first half of the week, the JP Morgan Emerging Market Currency Index is extending yesterday’s minor gains and for the week is off about 0.65%, after gaining nearly 1.8% last week.

Gold is extending its recovery after dipping below $1810 yesterday and is near $1833 near midday in Europe.  Crude oil prices are stabilizing in yesterday’s trough after June WTI slid 4.3% yesterday.  Near $64.50 a barrel, it is off a little less than $0.50 this week.    

Marc Chandler

Managing Director
Bannockburn Global Forex
www.bannockburnglobal.com