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Dollar remains in demand as US yields rise

Today’s macro highlights:

  • USD - US Consumer Confidence (April)
  • GBP - Public Sector Net Borrowing (March)
  • EUR - German IFO Expectations (April)

Dollar remains in demand as US yields rise

Yesterday proved to be remarkably uneventful for both the Pound and Euro, but we’re seeing some interesting action emerge on the US dollar. Rather than economic data driving this, it’s rising US bond yields that are providing much of the support and 3% on the 10-year Treasury bond is the magic number to watch for. As the return on these assumed risk-free assets improves, more people are wanting to hold dollars for the yield. To put this in context, the comparable German ‘bund’ currently pays just 0.64%.

At 9am BST today we have the German IFO Expectations survey out. This is a valuable forward-looking index of how some 7,0000 businesses see the market in the next six months and critically the market is expecting a drop below the 100 level, signifying a bearish outlook. This would be in line with that sluggish industrial production data we saw at the start of the month and has the potential to put further pressure on the Euro - but will increase the pressure on policy makers to do something in a bid to stimulate the economy.

9.30am BST sees the release of UK public sector borrowing data for March. It’s a relatively low-level reading but will show whether the government’s commitment to debt reduction is still working. Any sign that it is will have the potential to favour the pound as less debt will need to be issued in the future. As we’re seeing played out in the US right now, that relationship between bond yields and a currency’s value has the potential to move right to the top of the agenda.

US consumer confidence is set for release at 3pm BST. Again this is a valuable forward looking indicator and it’s expected to post a downturn for a second consecutive month. However, with employment prospects wavering in the face of trade tariffs and against a backdrop of rising borrowing costs, this waning sentiment can hardly be much of a surprise. Any signs of a rapid decline here could be an early indicator of recession and risk producing some short-term volatility for the greenback.

The pair broke below a key support level during yesterday’s trade, making for a rare run of five successive daily declines. Early March lows are now in focus.

EUR/USD posted its biggest one day fall in almost a month during yesterday’s session and is currently sitting around a major support level. Further selling could leave the pair open to a bigger run lower.

The pair traded in a tight range yesterday, struggling to find any direction. GBP/EUR is however struggling to break away from those lows for the month we saw hit on Friday.