US Dollar Climbs to 3 Months High Boosted by Treasury Yields

US Dollar Climbs to 3 Months High Boosted by Treasury Yields

US Equities

The US Indices dropped slightly on Monday, as the 10-year treasury yields touched the 3 percent. Since 2008, the Federal Reserve was adopting a low inflation expectation scenario and a bond buying program which kept treasury yields lower. However, inflation started picking up leading to several interest rate hikes which boosted yields. US indices were moving to the downside for the past days, as the rise in yields offset better earnings. Caterpillar (CAT), Coca-Cola (KO), and SAP ADR (SAP) will be posting earnings.


The dollar extended gains and traded at three months high as treasury yields are still rising. The dollar index, DXY, which measures the currency against six major currencies was able to break a downward trendline that was formed since early 2017, and to a strong resistance area that was formed since mid-January. Bond yields are at multiyear highs as investors are expecting that inflationary pressures will rise further, ensuring that the Federal Reserve will hike interest rates several times this year. The economic figures coming out for the US are showing that the US economy is resilient. In terms, of data, CB Consumer Confidence and New Homes Sales are due.


Euro dropped to almost two months low on a strong dollar despite the better than expected Manufacturing and Services PMI. The common currency is facing pressures ahead of the European Central Bank meeting on Thursday. Investors are waiting thoroughly the comments of the president Mario Draghi, as the Central bank is still between a neutral to hawkish tone. Some economic indicators are showing that the momentum is fading in the Eurozone economy which will curb any tightening actions by the ECB. As for today, we await the IFO numbers form Germany.


The British pound fell to one month low as the dollar strengthened on firmer yields. Last week, Bank of England Governor, Mark Carney, faded the possibility of a rate hike in May. The expectations of a gap in the monetary policy between the Federal Reserve and the Bank of England, is weighing on the GBPUSD pair, as investors favored the money flow to dollar as they expect higher dollar interest rates.


The Japanese Yen weakened to two months low breaking a strong resistance area that was formed near the 50 day Exponential moving average. The Yen was dumped as tensions eased in the market favoring risk appetite. Moreover, the Inflation figures from Japan are still well below the price target of the Bank of Japan which confirms that the bank will not be taking any tightening measures at the near time. The bank of Japan will be meeting on Friday, majority of analysts expects no change in policy, but the comments from the Governor should be monitored closely. Governor Kuroda commented yesterday, that excessive rates hikes are a risk to global economy and that the Japanese Yen is often too strong.


Australian dollar tumbled to four months low, as the inflationary numbers are showing signs of strength which can allow the Reserve bank of Australia to hike interest rates. The Australian dollar against the US dollar is trading around a major trendline that was being formed since early 2016. This area is expected to have some serious battle between buyers and sellers.


Gold fell for the third consecutive day on Monday, as geopolitical tensions eased and the dollar strengthened on rising treasury yields. Gold prices dropped more than one percent to trade at a two weeks low. The metal is expected to face some downside pressures if the strength in dollar persists.


West Texas Intermediate traded back near 2014 highs, after taking a dip after Trump’s tweet, were he accused OPEC for high oil prices which in his view is “No Good”. OPEC’S output cut plan is being effective, and it is reflected by higher oil prices. The American Petroleum Institute will report inventory levels of US crude oil today.

The most important economic events:

GMT Country Event Expectation Previous
8:00 EU German Business Expectations (Apr) 99.5 100.1
8:00 EU German Current Assessment (Apr) 106.0 106.5
8:00 EU German Ifo Business Climate Index (Apr) 104.7 114.7
10:00 UK CBI Industrial Trends Orders (Apr) 4 4
13:10 UK BoE Deputy Governor Woods Speaks    
14:00 US CB Consumer Confidence (Apr) 126 127.7
14:00 US New Home Sales (MoM) (Mar) 1.9% -0.6%
14:00 US New Home Sales (Mar) 625 618
20:30 US ِAPI Weekly Crude Oil Stock   -1.047


The prices and news mentioned in this outlook are absolutely no guarantee of future market performance and do not represent the view of ICM Capital Limited. Financial markets can move in either direction causing profits to be made or complete losses to be incurred by the trader. Each trader must decide for themselves what their risk appetite is and ensure that correct risk management procedures are in place before placing any trades.

CFDs and Spot FX are complex instruments and come with a high risk of losing money rapidly due to leverage. Your profit and loss will vary according to the extent of the fluctuations in the price of the underlying markets on which the trade is based. Read More
Read More
Mail Call Chat