Global Yields Continue To Rise As the EURO Tries To Return

Global Yields Continue To Rise As the EURO Tries To Return

Rising global yields remain in the spotlight today, with Germany’s 10-year bond yield hitting -0.234 and the UK 10-year bond yield hitting 0.818. Earlier in Asia, Japan’s 10-year-old JGB yield closed at a high of 0.152. The 10-year US yield is also trading above 1.45.

In the foreign exchange markets, the euro is trying to return today and is currently trading as the strongest, followed by the Canadian and then the Australian. The yen and Swiss franc remain the weakest, while the sterling softens as the recent rally seems to be exhausted.

Monthly flows are cited as the main factor behind Thursday’s movement in favor of the euro and against the US dollar. The euro also appears to be gaining some support from other crosses, most notably the EUR/GBP, which bounced more than 70 pips in a day to 0.8675 areas, a decent recovery from Wednesday’s lows below 0.8550.

Apart from the above, there is no clear fundamental reason why the euro should perform so well on this day. European bond yields are rising, but to the same extent as US bond yields, which means that the yield spreads on US and European bonds have not changed as much. Either way, this is not enough for forex traders to fuss about.
European Central Bank (ECB) Monitors Longer-Term Nominal Bond Yields
The indicator of economic sentiment in the eurozone in February rose from 91.5 to 93.1. The industry confidence index rose from -6.1 to -3.3. Services confidence fell from -17.7 to -17.1. Consumer confidence rose from -15.5 to -14.8. Confidence in retail fell from -18.5 to -19.1. The employment expectation index rose from 89.1 to 90.0.

In his speech, ECB Chief Economist Philip Lane said: “Ensuring an enabling financing environment is central to recovering inflation and defining inflation expectations.” And “maintaining a favorable funding environment should include performance checks throughout our monetary policy transmission chain.”

Within the broad set of indicators, he said, “the downstream conditions faced by households and firms relying on bank loans play a decisive role.” “Indicators of risk-free OIS rates and sovereign profitability in exploration and production are especially important.”

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Japanese Yen Stays Pressured As BoJ Reviews Monetary Policy Tools

Japanese Yen Stays Pressured As BoJ Reviews Monetary Policy Tools

It looks like selling attention will be on the yen as markets continue towards the end of Wednesday’s session. Japanese Prime Minister Yoshihide Suga said Wednesday that they will announce on Friday whether they decide to lift the state of emergency due to the coronavirus outbreak.

The dollar and euro are also weak, but both are supported by buying against the yen and franc. On the other hand, commodity currencies remain the strongest to date, led by the New Zealand dollar. The Canadian dollar is in second place thanks to a moderate rise in oil prices.

Meanwhile, Bank of Japan Governor Haruhiko Kuroda told parliament today that various instruments of the Bank of Japan, including the purchase of its ETF, will be the target of the March review. We will study how our instruments affect the markets and see what we can do better. He added that purchases of government bonds have already slowed significantly as markets remain calm. The average bond duration also remained stable at around seven years.
Fx Market Reaction
Commenting on the Bank of Japan’s monetary policy instruments, Governor Haruhiko Kuroda said in a statement Wednesday that the purchase of the bonds is for monetary policy purposes, not for the government.

These comments appear to have a moderate impact on JPY’s performance compared to its main competitors. At the time of writing, USD/JPY is trading at 105.95, up 0.65% on the day. USD/JPY is challenging daily highs at 106.10 on Kuroda’s commentary as it hovers at the top leaving room for further gains.

USD/JPY has the best day of the week amid rising US yields. The pair rallied to 106.10, hitting a weekly high, and then pulled back to the 105.90 area. DXY reversed in positive territory and climbed to 90.40 and now stands at 90.25.

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Fed Chair Powell: US Economy Remains a Long Way From Targets

Fed Chair Powell: US Economy Remains a Long Way From Targets

US Federal Reserve Chief Powell gives testimony on monetary policy before Congress. “The economy is still far from meeting its inflation and employment targets,” Powell said. His prepared remarks before addressing Congress also confirm that the outlook has improved.

In a semi-annual testimony, Fed Chairman Jerome Powell admitted that “the number of new (coronavirus) cases and hospitalizations is falling, and ongoing vaccinations offer hope for a return to more normal conditions later this year.”

The US dollar is retreating from highs and stocks are bouncing off lows on initial reaction. Powell also says it will take time to make “significant further progress”. In any case, he said, the Fed will announce changes in bond purchases “in advance.”

Perhaps the softest statement is that he promises not to tighten monetary policy solely in response to a strong labor market. Another caveat: growth has slowed significantly since summer.
Rise in US Consumer Confidence, As WTI Recovers on Powell Statement
Consumer confidence at the US Conference Board rose to 91.3 in February from 88.9, above expectations of 90.2. The current situation index rose from 85.5 to 92.0. However, the index of expectations fell from 91.2 to 90.8.

Equities rebounded from open lows in recent trading after the crash, presumably thanks to mild assurances from Fed Chairman Jerome Powell, who spoke by videoconference in his semi-annual speech to Congress, which helped push WTI back to the middle. – $ 61.00

Meanwhile, crude oil markets are gearing up for an OPEC + meeting next week and a potential clash between the Saudis and Russians over how much to increase production. Most expect the cartel to cut production quotas by about 500,000 barrels per day.

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Pound Sterling Rebounds As UK Government Unveils Re-Opening Plans, USD Stays Pressured

Pound Sterling Rebounds As UK Government Unveils Re-Opening Plans, USD Stays Pressured

Prime Minister Boris Johnson today unveiled plans to gradually ease the lockdown measures, adding to the optimism. The cable is back above 1.40 and hitting a fresh 34-month high of 1.4052 after briefly falling to 1.3980 in early European deals on Monday.

On Monday, the UK government released a document detailing its plan to ease the coronavirus-related isolation measures. “The lockdown roadmap is divided into four phases with a minimum interval of five weeks between each step,” and one of the key steps states: “People should continue to work from home until the results of a social distancing survey are available, which, is expected to be completed by June 21,” 

Prime Minister Johnson, meanwhile, said that “we will draw up a plan of action to gently pull us out of lockdown,” with the top priority of reopening schools. The UK has gained a pioneering advantage in terms of getting covid shots, and now about 25% of the population is vaccinated with the first dose. This factor continues to support sentiment around the pound.

Reflationary trading amid optimism about the vaccine and stimulus continues to benefit the risky asset, the pound sterling, as investors ignore reports highlighting the impending Brexit risks. Markets remain focused on reflationary trading, awaiting fresh news on a potential US stimulus deal. The main event of the Pound Sterling remains the speech of British Prime Minister Johnson, in which he charted a way out of isolation.
USD Stays Pressured With a Bias to the Downside
The dollar weakened against most of its main competitors, with the Australian dollar and pound sterling soaring to new multi-year highs. The American currency fell, although the yield on US Treasuries resumed growth and ended the week at its highest level in a year.

The Federal Reserve released its semi-annual monetary policy report, which showed policymakers believe that the risks of impending bankruptcies in the country “remain significant.” Chief Jerome Powell is due to testify before Congress this week, for the first time during Biden’s administration.

Powell is due to testify before Congress on Tuesday, and his prepared remarks could be published as early as Monday. If he confirms the bank’s willingness to do more and opens the door to more bond purchases, yields could fall and the dollar may rally. While he is unlikely to go for new and imminent stimulus, Powell’s willingness to do more could provide the next upward leap for GBP/USD.

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Dollar Weakness To Continue Despite Improving Economic Outlook

Dollar Weakness To Continue Despite Improving Economic Outlook

The dollar weakened against most of its main competitors, with the Australian dollar and pound sterling soaring to new multi-year highs. The American currency fell, even though the yield on US Treasuries resumed growth and ended the week at its highest level in a year. Wall Street closed mixed on Friday, with the DJIA close to record highs, but the S&P declined for the fourth day in a row.

The Federal Reserve released its semi-annual monetary policy report, which showed policymakers believe that the risks of impending bankruptcies in the country “remain significant.” Chief Jerome Powell is due to testify before Congress this week, for the first time during Biden’s administration.

New York Federal Reserve President John Williams said Friday that:
“Yield growth is not a concern. The US economy is still in a deep hole. There are many ways for the economy right now to return to 2% inflation with maximum employment. Don’t worry about excessive fiscal incentives. The very strong asset prices reflect what investors are looking forward to, beyond COVID and low-interest rates. They see no evidence of imbalance.”
US Economy Sees Challenges Ahead
Boston Federal Reserve President Eric Rosengren said Friday that the US economy could face difficulties in the next few months.

Abnormally low temperatures in the US, especially in Texas, have forced a significant portion of US oil wells and refineries to shut down this week. Initially, oil prices rose due to this disruption, but they have since recovered much of their growth. They may even drop in the coming weeks if refining takes longer to get back online than production.

This week, most investor attention is likely to focus on President Joe Biden’s State of the Art Address, in which he is expected to provide details on a green infrastructure package dubbed the American Recovery Plan.

While Biden’s proposal could provide an initial rise in metal prices, there is no guarantee that Congress will legalize and, in any case, the money will be distributed over an extended period.

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Aussie Soars on Industrial Metal’s Rally, Pound Steady on PMI & Retail Sales

Aussie Soars on Industrial Metal’s Rally, Pound Steady on PMI & Retail Sales

The early gains in the Australian market came after the mixed performance on Wall Street on Friday. The Australian dollar is outperforming the pound sterling as the strongest dollar for the week, helped by a return to risky markets. In particular, the industrial metal is rallying strongly, and copper is trading higher at the time of writing.

AUD/USD continued its daily rally at the start of the US session on Friday and hit its highest level in 35 months at 0.7877. At the time of writing, the pair is up 1.33% on the day to 0.7873. The unrelenting selling pressure surrounding the US dollar allows AUD/USD to maintain its bullish momentum ahead of the weekend.

Sterling continues to trade as one of the strongest in the week as the focus is on UK retail sales and PMIs. Additional surprises could lift the pound again. The Australian dollar remains the second strongest so far.

Retail sales in Australia rose 0.6% mom in January, below expectations of 2.0% mom. All states and territories, except Queensland, rose. New South Wales posted 1.0% growth as COVID-19 restrictions were eased in Greater Sydney in January. Queensland saw a 1.5% drop, and Brisbane’s COVID-19 restrictions saw the plunge. Ben James, director of Quarterly Economy Wide Surveys, said: “There are still differences in retail sales between states and territories as COVID-19 restrictions are tightened or relaxed in different parts of the country.”
Pound Sterling Remains Steady on PMI & Retail Sales
Sterling continues to trade as one of the strongest in the week as the focus is on UK retail sales and PMIs. Additional surprises could lift the pound again. Meanwhile, the pound sterling is oblivious to poor retail sales but has been buoyed by the PMI and optimistic comments from Bank of England officials.

Bank of England MPC member Gertjan Vlige said in his speech that “if the economy develops broadly in line with our central forecast for February, then, in my opinion, it is likely that no further monetary stimulus will be needed … we will just finish the announced program of quantitative easing ”.

The UK manufacturing PMI rose to 54.9 in February from 54.1, above expectations of 54.0. PMI Services rose to 49.7 from 39.5, higher than the 40.5 forecasts. The Composite PMI rose to 49.8 from 41.2.

GBP/USD has finally hit the round 1.40 level amid optimistic UK coronavirus statistics and a weaker dollar amid speculation about a yield boost. Both topics are expected to climax in the last week of February, while economic data will also have its time.

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GBP Surges on Dollar’s Fall As Unemployment Claims Rise Past Forecast

GBP Surges on Dollar’s Fall As Unemployment Claims Rise Past Forecast

On Thursday, the GBP/USD pair found several aggressive bids and rose by about 150 points during the day. The emergence of new US dollar bears was seen as a key factor fueling the momentum. The disappointing release of US jobless claims data adds to the downward pressure on the US dollar.

The dollar has come back under some selling pressure since the European session and is strengthening after poor employment data. The weakness of the dollar puts the Canadian dollar in second place with the worst performance and the yen in third place.

The US dollar remained weak early in the North American session and pushed the GBP/USD pair to new highs around 1.3985 following US macro releases. The strong intraday momentum was driven solely by new bears around the US dollar. Sterling leads up again, followed by the Australian dollar and the kiwi. Euro and Swiss France are mixed as ECB protocols don’t give traders anything special.

The pound continues to be among the leaders of the week. Vaccination expectations in the UK continue to be a key driver for the currency. On Thursday, comments from Bank of England politicians did not prevent the GBP/USD rate from continuing to rise. Ramsden suggested there was room for further quantitative easing, while Sanders was not very positive.

U.S Unemployment Claims Rise Past Forecast
The number of initial claims for unemployment benefits in the United States rose 13,000 to 861,000 for the week ended February 13, higher than expected at 775,000. The four-week moving average of initial claims fell by -3.5 thousand to 883.3 thousand. In the week ended February 6, the number of ongoing claims fell from -64 thousand to 4,494 thousand.

Also in the US, the number of new homes being commissioned fell to 1.58 million years on year in January. Building permits rose to 1.88 million sq. M. The import price index rose 1.4% mom in January. The Philadelphia Fed survey fell to 23.1% in February. A slight increase in the number of jobless claims, in addition to a significant upward revision of data last week, indicates that the labor market recovery continues to be slow.

“Expectations of a moderate decrease in the number of applications for unemployment benefits this week did not materialize: the number of initial applications increased by 13 thousand. More worrisome was the upward revision of the previous week’s data. However, initial applications totaled 861K against 773K expectations, which is a clear signal that the labor market recovery is still trying to recover momentum. ”

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U.S Dollar Recovers Amid Positive Retail Sales, Euro Takes the Back Seat

U.S Dollar Recovers Amid Positive Retail Sales, Euro Takes the Back Seat

The dollar recovery gains traction in early US trading, boosted by stronger-than-anticipated retail sales data. The Canadian dollar is the second strongest today amid a renewed rally in oil prices.

On the other hand, the euro is experiencing sharp sell-offs along with the Swiss franc and pound sterling. The yen is showing mixed performance, awaiting some guidance from equity markets and risk sentiment. US retail sales jumped 5.3% MoM to $ 568.2bn in January, higher than the expected 1.1% MoM. Ex-car sales rose 5.9% MoM, which above expectations of 0.9% MoM. Excluding gasoline, sales rose 5.4% MoM. Sales excluding cars and gasoline rose 6.1% MoM.

It was also published that the PPI rose in January by 1.3% m/m, 1.7% y/y, which is higher than anticipated at 0.4% m/m, 0.9% y/y. Basic price index producers grew by 1.2% m/m, 2.0% y/y, which is higher than expected by 1.2% m/m, 1.2% m/m. Strong dollar rebound is accompanied by a steady recovery in the yield of key 10-year US bonds, which for the first time since February 2020 hit the high of their recent range above 1.30%.
Euro Takes the Back Seat
On Wednesday, the EUR/USD pair showed strong sell-offs and continued its pullback from three-week highs. Buying interest in the US dollar increased during the early North American session and pulled EUR/USD to half-week lows, below the midpoint. Macro data for the 1,2000s after the US.

The fall was fueled by the exceptionally strong strength of the US dollar, supported by the recent skyrocketing US Treasury yields. In the absence of significant releases of macroeconomic data from the euro area, the market valuation of the US dollar remained the main driver of EUR/USD on Wednesday.

After the last drop, the EUR/USD pair has now found recognition below the 1.2000 midpoints and appears vulnerable to further slide. Consequently, some subsequent weakness back to the challenge of the key psychological 1.2000 level, on the way to the lows of the monthly fluctuations around the 1.1950 area, now looks very likely.

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EURO Retreats Amid Positive Confidence Data

EURO Retreats Amid Positive Confidence Data

EUR/USD closed the first day of the week with little change and gained momentum during the European session on Tuesday. However, having touched the highest level in three weeks at 1.2170, the pair reversed its course and turned negative during the day.

The euro is showing slight losses, and now the EUR/USD pair is trading at 1.2116, down 0.15% over the day. The price dynamics of the EURUSD pair remain somewhat unchanged as the US markets are closed today due to President’s day. Investors are optimistic about the upcoming US stimulus package. News on this matter is expected by the end of the month.

In the North American session, the dollar has risen sharply and has recently returned some of this profit. However, the dollar stays higher against all major currencies throughout the day, except for the pound sterling. JPY and CAD are the weakest of the major currencies.

Regardless, stocks remained calmer and US futures indicated moderate gains despite a slight delay in previously released data on US-China tensions.
German Economic Confidence Beats Forecast
German ZEW data for February showed that the index of economic sentiment improved to 71.2 against expectations of 59.5 and 61.8 last year. While the index for the current conditions sub-index reached -67.2 in February against -67.0 expected and -66.4 previously recorded.

Meanwhile, the index of economic sentiment ZEW in the euro area in February jumped to 69.6 against the forecast of 57.0 and the previous value of 58.3. ZEW President Professor Achim Wambach said:

“Financial market experts are optimistic about the future; they are confident that the German economy will be back on the growth track within the next six months.”
“Consumption and retail trade, in particular, is expected to recover significantly, accompanied by higher inflation expectations,” Wambach added.

As noted by ZEW, inflation is rising in both Germany and the eurozone. At the same time, there are plenty of signs of trouble. Eurozone GDP for the fourth quarter of 2020 was -0.6%, compared with an initial estimate of -0.7%.

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Dollar Returns on Rising U.S Yields, Gold Falls As German Zew Boosts Euro

Dollar Returns on Rising U.S Yields, Gold Falls As German Zew Boosts Euro

The dollar is hitting back today, fueled by rising US yields. Besides, the dollar also maintains stronger than expected manufacturing figures. While European stocks are in the thick, US futures opened higher. The yen is now the worst, followed by the Australian and Canadian. Overall, it remains to be seen if the dollar will be able to withstand the rebound.

Overall, market dynamics have not changed, as a strong risk appetite remains. Today the focus is on whether the economic sentiment of the ZEW in Germany and the GDP of the eurozone can lift the euro. Otherwise, the current trend should continue shortly. Meanwhile, gold fell, but technically the fall in gold is in line with a rebound in the dollar.

Germany’s ZEW economic sentiment index rose to 71.2 in February from 61.8, well above 60.0 expectations. The current situation index fell to -67.2 from -66.4, surpassing expectations of -67.0. The Eurozone ZEW Economist Sentiment Index rose to 69.9 from 58.3, well above expectations of 59.2. The current situation index rose 4.3 points to 74.6.

Financial market experts are optimistic about the future. They are confident that the German economy will return to a growth trajectory over the next six months. In particular, consumption and retail trade are expected to rebound significantly, which will be accompanied by higher inflationary expectations, ”comments ZEW President Achim Wambach.
Gold Corrects Lower on Rising U.S Yields
For gold, any gains from the general risk environment were offset by higher US yields. Gold’s overall technical position remains fragile and will come under further bearish pressure this week if US yields continue to rise.

Gold dropped to week and a half lows early in the North American session, and bears are now looking for a sustained break below the $1800 round mark.

The precious metal struggled to capitalize on its intraday positive move, but instead met some fresh supply in the $1826-27 region and now appears vulnerable to further declines. The prevailing risk environment, as evidenced by the continuation of the recent bullish gains in equity markets, held back the early rally for the safe-haven XAU/USD.

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Author : Azeez Mustapha

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Azeez Mustapha is an experienced author, trader, markets analyst, signals strategist, and funds-manager.