3.00%? – US Yields Push Dollar Higher

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.