The Yuan Extends Gains, While Sterling’s First Close above $1.42 in Three Years Goes for Nought

Today’s Highlights

• * The US 10-year yield is higher for the third session, helping to stabilize the greenback.
• * The Chinese yuan’s appreciation continued for the seventh consecutive session and is at a new three-year high, with the dollar below CNY6.37.  Official protests appear to be quite modest. 
• * The dollar held a touch below JPY110, its highest level since mid-April.  A $2 bln option struck there expires today.  
• * After several attempts, sterling finally closed above $1.42 for the first time in three years, but there has been no follow-through buying. 
• * The US is expected to report a record goods trade deficit in April.  The personal income and expenditure data will pullback back after the government-induced surge in March. 
• * In among the most bipartisan efforts, the US Senate is expected to pass a bill that is to boost US competitiveness and includes some measures that were in the infrastructure proposal. 
• * The Biden administration’s FY22 budget is also to be unveiled today. 

The recovery of the US 10-year yield, so it is flat on the week near 1.61% coupled with month-end demand, is helping the US dollar firm.

While the yen is bearing the burden on the week, with a 0.8% loss, the Antipodeans are leading the downside on the day.  Although the New Zealand dollar has not maintained the momentum spurred by the more hawkish RBNZ, it is holding on to about a 1% gain for the week to lead the majors. The Chinese yuan rose to new three-year highs today, and its 1.1% gain on the week is the most since last November.

While the JP Morgan Emerging Market Currency Index is trading heavily today, it is snapping a two-week decline. The yen’s weakness helped lift the Japanese shares, and the Nikkei gapped higher, and its 2.1% gain was the most in ten weeks.

The largest equity markets in the Asia Pacific region were stronger, save China and Hong Kong.  European shares are firmer, and the Dow Jones Stoxx 600 is reaching new record highs with the seventh consecutive advance. US futures indices are trading 0.2%-0.4% better.

US and European benchmark 10-year yields are little changed.

Industrial commodities in China, including iron ore and steel rebar, are closing the week on the upside, though copper is trading lower. Lumber futures are bringing a four-week decline into today’s session. Oil prices are higher, and July WTI is rising for the sixth consecutive session.  It reached $67.45 in Asia, a new high, before consolidating. Gold is also consolidating after being unable to close above $1900 despite intraday penetration for the past two sessions. 

Marc Chandler

Managing Director
Bannockburn Global Forex
www.bannockburnglobal.com