There is little in terms of fresh updates on either the eurozone or US economies today but given last Friday’s disappointing non-farm payrolls report, markets will be keeping a close eye on weekly jobless claims.
The dollar’s recent rally appears to have run out of steam in tandem with a pause in the sharp uptrend in US Treasury yields, which had been a major driver of dollar gains earlier this week. A view is emerging that the sell-off in treasuries, on raised growth expectations after the deal struck between Obama and Republicans to extend tax cuts, may have been overdone.
The dollar is suffering from improved risk appetite following overnight news of surprisingly strong Australian employment data. This saw the Australian Dollar jump by nearly 1% at one stage. The New Zealand dollar, though, is lagging following a surprisingly dovish statement from the Reserve Bank of New Zealand following its meeting at which rates were left on hold at 3.0%, as had been widely expected.
Against the dollar, sterling pushed higher, rising 0.2 percent to $1.5787 after trading lower earlier in the session, with traders citing real money and sovereign demand for the UK currency. Gains were limited, however, as the dollar benefited broadly from a jump in U.S. bond yields after a proposed extension in U.S. tax cuts fuelled concerns about inflation.
The dollar later rose against most other currencies yesterday on the back of a spike in U.S. Treasury yields causing funds to flock in the direction of the Greenback. Also a proposed extension in U.S. tax cuts raised growth expectations for the U.S. economy and pushed U.S. Treasury yields to their highest level in at least six months as they fuelled fears about inflation and Washington’s control of the budget deficit. That also drove 10-year gilt yields to four-month highs although gilts underperformed U.S. Treasuries, tempering sterling gains.
Written by James Rowe