Dovish Fed message, Treasury yields soar, dollar higher
Yesterday’s dovish comments by Fed Chair Powell triggered a massive sell-off in global bonds and the US Treasury 10-Yr bond yield has soared to 1.75%. Global equities rallied on the news; however, S&P 500 futures peaked overnight, then fell and are opening lower. Tech stocks are vulnerable to rising interest rates, so the NASDAQ is underperforming. The US dollar is broadly stronger, gold and oil prices are both lower. This morning’s weekly Initial Jobless Claims figure was much higher than expected. The Bank of England met today – no change to their benchmark rate.
March 18, 2021
EUR/USD 1.1917 GBP/USD 1.3904 USD/CAD 1.2457 AUD/USD 0.7770 USD/JPY 109.1900 USD/CNH 6.5081 USD/ILS 3.2979 USD/MXN 20.5341 USD/CHF 0.9293 USD/INR 72.5275 USD/BRL 5.5681 USD/SGD 1.3441 USD/DKK 6.2406 USD/SEK 8.5220 USD/NOK 8.4817
The dollar is stronger across the board, as higher interest rates attract new buying. UST yields moved to 1.75%, the highest level since January last year, following the Fed’s dovish message which increased inflation fears. Tech stocks are considered most sensitive to rising interest rates, so the NASDAQ index, a benchmark for high-valuation tech stocks, is already lower 1.35% on the day. Initial Jobless Claims of 770K were much higher than 700K expected and the previous 725K. On the positive side, the Philadelphia Fed Business Outlook for March came in at the highest level in early 50 years.GBP
The UK pound dropped by 0.25% overnight. The Bank of England met today – they kept their record low 0.10% benchmark rate unchanged and maintained the target for asset purchases of $1.2 trillion and program of buying 4.4 billion pounds of bonds every week. Comments by BOE Governor Andrew Baily indicated a brighter economic outlook with the successful vaccine deployment, but expressed concern with a probable Q1 economic contraction and ongoing high unemployment.EUR
The euro is lower by nearly 0.50% as the spread in yields widened to 200 bps between 10-Yr US Treasuries (1.75%) and German bunds (-0.25%). Eurozone vaccine deployment issues remain, which may continue to be a drag on economic growth. Yesterday’s general election in the Netherlands had center-right PM Mark Rutte win big, his fourth term in office.CAD
The USD/CAD fell to a fresh low at 1.2365 last night, but is opening much higher this morning. The loonie is poised for its first loss in eight days, fueled by broad strength in the USD and lower commodity prices.ASIA/PACIFIC
Asian currencies all edged lower in-line with broad US strength, but outperformed currencies of most other regions.
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