US 10-year bond yield jumps above 4% - first in four months

Dollar Index Soars 0.5%; Sterling, Euro Slump; USD/EMFX Up

Summary:

The benchmark US-10 Year Treasury Yield jumped above 4% for the first time since December 2022 to 4.07%, up from 3.92% Wednesday.

A favourite gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) soared 0.5% to 104.65 from 104.05 yesterday.

Claims for Unemployment benefits in the US eased to 190,000 bettering economist’s forecasts for 196,000. Which highlighted a tight job market that is contributing to inflationary pressures.

The Euro (EUR/USD) slumped 0.68% to 1.0597 (1.0650 yesterday). Despite a 4-basis point rise in German 10-year bond yields, the 15-point surge in its US counterpart weighed on the shared currency.

Against the Japanese Yen, the Greenback (USD/JPY) rallied 0.4% to 136.73 after hitting an overnight high at 137.10. Sterling (GBP/USD) slumped to 1.1950 against 1.2050 yesterday.

Fed speak also buoyed the Dollar. Minneapolis Fed President Neel Kashkari, who is a voter in the FOMC this year, said he was “open-minded” about a 50-basis point hike at their meeting later this month.

The Australian Dollar (AUD/USD) slid 0.46% to 0.6729 (0.6770). Data released yesterday saw Australian Building Approvals tumble -27.6% against a previous downward adjusted 15.3%.

Against the Asian and Emerging Market currencies, the US Dollar finished higher. The USD/CNH pair (Dollar-Offshore Chinese Yuan) rose to 6.9250 from 6.8730 yesterday. USD/SGD (Dollar- Singapore Dollar) rallied to 1.3477 (1.3407).

Following two days of losses, US stocks rallied. Atlanta Fed President Bostic said he was firmly in the 25-basis point camp for the pace of rate hikes.

Data released yesterday saw Japanese Capital Spending q/y ease to 7.7% from a previous 9.8%, but better than estimates at 7.2%. Consumer Confidence in Japan was at 31.1, up slightly from 31.0.

Italy’s Unemployment Rate (m/m) rose to 7.9% from a previous 7.8%. The Eurozone CPI Flash Estimate (y/y) rose to 8.5% against median forecasts for a rise to 8.3%. Core CPI Estimate was up at 5.6%, up from a previous 5.3%, and higher than economist’s forecasts at 5.3%.

The Eurozone’s Unemployment Rate climbed to 6.7% from a previous 6.6%, and median forecasts at 6.6% as well.

• EUR/USD – The Euro fell against the broadly-based stronger US Dollar to 1.0597 (1.0650). The overnight low traded was at 1.0576. The gap between Germany’s 10-year Bund rate (2.74%) and its US ten-year counterpart (4.07%) widened to 133 basis points. Trading was choppy with the overnight high recorded at 1.0674.
• AUD/USD – The Aussie Battler tumbled to 0.6729 in late New York from yesterday’s 0.6770. A marked fall in Australia’s Building Approvals in February (-27.6%) against expectations of -7.1% pulled the Australian Dollar lower. Overnight low traded was at 0.6706 while the high recorded was at 0.6766.
• USD/JPY – The Dollar gained versus the Japanese Yen to 136.72 from 136.10 yesterday. Widening yield differentials between the US and Japanese bonds pushed the Greenback higher vs the Yen. Japan’s 10-year JGB yield dipped to 0.49% (0.50%). Overnight peak recorded for the USD/JPY pair was at 136.92.
• GBP/USD – Sterling was pounded lower to 1.1950 from 1.2050 yesterday. A firmer Greenback saw the GBP/USD pair trade to a low at 1.1925 before settling. In volatile trade of its own, the overnight high recorded was at 1.2038. There were no major data releases from the UK overnight.

On the Lookout:

Today’s economic calendar is a busy one to end the week. Several central bank heads are scheduled to speak. New Zealand Reserve Bank Governor Adrian Orr is due to speak at the New Zealand Economics Forum in Hamilton, New Zealand. Federal Reserve FOMC Member Kashkari speaks on race, justice, and the US economy on Minnesota radio.

Australia kicks off with its Judo Bank Final February Services PMI for February (f/c 49.2 from 48.6 – ACY Finlogix). Japan follows with its February Tokyo Annual CPI report (Headline forecast 4.0% from 4.4%; Core f/c 3.3% from 4.3% - ACY Finlogix). Japanese Unemployment Rate for January follows (f/c 2.5% from 2.5%). Next up is Japan’s Jibun Bank Final February Services PMI (f/c 53.6 from 52.3). Australia releases its January Home Loans (m/m f/c -3% from -4.2%). China follows with its February Caixin Services PMI (f/c 53.8 from 52.9). All economic data forecasts are courtesy of ACY Finlogix.

Germany kicks off Europe with its January Trade Balance (f/c +EUR 8.6 billion from +EUR 9.7 billion – ACY Finlogix). France follows next with its January Industrial Production report (m/m f/c 0.1% from 1.1% - ACY Finlogix). Italy is next with its February Global Services PMI (f/c 53.1 from 51.2). France follows with its February Global Services PMI (f/c 52.8 from 49.4 – ACY Finlogix), French January Industrial Production (m/m f/c 0.1% from 1.1%). Germany follows with its S&P Global Services PMI for February (f/c 51.3 from 50.7 – ACY Finlogix).

The UK is up next with its UK S&P Global Services PMI for February (f/c 53.3 from 48.7 – ACY Finlogix). Canada kicks off North America with its January Building Permits (m/m f/c 1.5% from -7.3% -ACY Finlogix). The US rounds up today’s reports with its US S&P Final Global Services PMI for February (f/c 50.5 from 46.8); US ISM Non-Manufacturing PMI for February (f/c 54.5 from 55.2). US Fed speakers include Bowman, Barkin and Bostic.

Trading Perspective:

The US Dollar keeps its bid against its Rivals, supported by widening yield differential as we close the week. The only caveat is long speculative Greenback bets which could liquidate at any time. The Greenback has risen four days out of five this week. What is certain is the trading markets will remain choppy. Data releases will be scrutinised with global Services PMIs expected to rise. Any large discrepancies will move currencies. Be prepared, stay flexible, and keep those tin helmets on. Happy Friday indeed!

• EUR/USD – Look for immediate support at 1.0575 to hold first up. The next support level lies at 1.0550 and 1.0520. On the topside, look for immediate resistance to cap at 1.0630 and 1.0670 (overnight high traded was at 1.0674), and 1.0700. Look for another volatile trading day in the EUR/USD pair, likely range today 1.0570-1.0670. Trade the range.

• AUD/USD – The Aussie Battler wilted in the face of an overall stronger US Dollar, settling at 0.6729 from 0.6770 yesterday. Immediate support can be found at 0.6700 followed by 0.6670. On the topside, look for immediate resistance to cap at 0.6760 and 0.6790. Look for further choppy trading in a likely range today of 0.6700-0.6780.
• USD/JPY – Against the Japanese Yen, the Dollar edged higher to 136.73 against yesterday’s 136.10. Overnight high traded was at 137.10. On the day, look for immediate resistance at 137.00 followed by 137.40. Immediate support can be found at 136.40, 136.10 and 135.80. Look for a likely range today of 136.00-137.00. Trade the range, nice and wide.
• GBP/USD – Sterling slid to 1.1950 from 1.2050 yesterday. Broad-based US Dollar strength weighed on the British currency. Today, look for immediate support at 1.1925, which is the overnight low. The next support level lies at 1.1900 followed by 1.1870. Immediate resistance today can be found at 1.1980, 1.2010 and 1.2040. Look for further volatile trade in Sterling with a likely range today of 1.1920-1.2020. Prefer to sell rallies.

Happy trading, happy Friday all. And a top weekend as well.