Turn Around Tuesday or Dollar Rally Resumes?

Today’s Highlights

•    The US dollar is paring yesterday’s losses, but the US 10-year yield struggles to rise back above 1.50% and the short-end rate soften as Fed’s Powell pushes against the hawkish talk.
•    Japan is likely to join South Korea, Taiwan, the EU, China, and the US in boosting investment to expand semiconductor fabrication capacity
•    The UK will formally begin negotiations to join the CPTPP trade bloc.
•    Hungary is set to become the first EU country to hike rates.  The Czech Republic may follow suit tomorrow.
•    US reports existing home sales, which are expected to have fallen for the fourth consecutive month. In addition to Powell’s testimony, the Fed’s Mester and Daly also speak today. 

Firming long-term US yields have lent the dollar support after trading heavily yesterday. The greenback is around 0.15%-0.50% higher against the major currencies. The Japanese yen and Canadian dollar are among the more resilient, and the Australian dollar and sterling among the heaviest. Emerging market currencies are mostly lower, except the South Korean won and Turkish lira. Even the Hungarian forint, where the central bank is widely expected to be the first EU country to lift rates today, is weaker.

The US 10-year yield continues to recover from the drop to almost 1.35% early yesterday and appears capped near 1.50%.  European yields are mostly softer, while Australia and New Zealand saw a seven basis point jump in the yield of their 10-year benchmarks.

Asia Pacific equities responded strongly to yesterday’s rally in the US, led by a 3%+ gain in Tokyo and 1.5% in Australia. Japan’s shares gained the most in around 12-month after yesterday’s first purchases by the BOJ in a couple of months.  Hong Kong and Singapore failed to participate in the recovery after Monday’s slide.  Europe’s Dow Jones Stoxx 600 and US indices futures are trading lower.

Commodities are sporting a weaker profile.  Copper is paring yesterday’s gains.  Iron ore fell 3.6% in Shanghai to bring this week’s loss to over 8%.  Steel rebar has fallen by nearly 5% this week.  Gold snapped a six-day drop yesterday with a 1% gain but stalled in front of $1800 and is trading heavier again today.  August WTI initially extended yesterday’s 2.6% gain and reached $73.35, its highest level in nearly two years, before slipping back to around $72.50.

Marc Chandler

Managing Director
Bannockburn Global Forex
www.bannockburnglobal.com