Yahoo Finance Higher U.S. Treasury Yields Driving U.S. Dollar Strength
The U.S. Dollar rose against a basket of currencies on Thursday, posting a rare gain against all major currencies in the index. Most of the strength was driven by U.S. higher U.S. Treasury yields and expectations of more rate increases from the U.S. Federal Reserve.
June U.S. Dollar Index futures settled at 89.695, up 0.348 or +0.39%.
The move in the U.S. Dollar suggests a major shift in sentiment may be taking place in the markets which could be short-term supportive for the Greenback and has the potential of turning it into a major event.
Recent economic data suggested business activities overseas may have peaked. This has reduced the appeal of the euro, yen, pound and other currencies which have strengthened against the dollar since 2017 based on the view economies outside the United States had been faring better until recent weeks.
The current price action indicates that the relatively optimistic view about the U.S. economy should be enough to support the Fed’s notion to raise interest rates at least two more time in 2018. Some traders are even pricing in as many as three rate hikes.
While the U.S. economy may not be firing on all cylinders, it has remained on a steady path and has done nothing to sway the Fed from sticking with its current pace of rate increases. A key futures market indicator strongly indicates that traders are already pricing in rate hikes in June, September and possibly December.
With traders having the opportunity to focus on economic data this week rather than geopolitical events, a strong upside bias may be developing in the U.S. Dollar with the index reaching its highest level since April 9.
Forex
The British Pound finished lower for a third session on Thursday, pressured by dovish remarks from the head of the Bank of England. Bank of England Governor Mark Carney on Thursday acknowledged the recent mixed domestic economic readings, which reinforced the view the BOE would raise rates gradually over the next few years. His comments drove the Sterling to nearly a two-week low against the dollar.
The GBP/USD settled at 1.4080, down 0.0122 or -0.86%.
The Euro fell amid talk that investors are growing nervous that the Euro Zone economy’s rebound is nearing the top and the European Central Bank may move more slowly to tighten monetary policy.
The EUR/USD settled at 1.2344, down 0.0031 or -0.25%.
U.S. Treasury Markets
U.S. Treasury yields rose on Thursday in reaction to better-than-expected economic data. In the U.S., the Labor Department reported that new applications for U.S. unemployment benefits fell last week. Also the Philadelphia Fed Index, a measure of manufacturing activity in the district, came in at 23.2 for March, higher than the 20.5 level expected by Wall Street economists.
The yield on the 10-year Treasury note climbed above 2.9 percent, while the yield on the 30-year Treasury bond was higher at 3.097 percent. The U.S. five-year note yield hit a high of 2.7635 percent, its highest level since August 2009 when it yielded as high as 2.7772 percent. Earlier in the week, the two-year Treasury note hit its highest level since September 2008.
This article was originally posted on FX Empire
