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Resurgent US Rates Kick Dollar Higher

Posted by Joseph Trevisani on Apr 21, 2016 6:33:47 PM

It may not be a trend yet but the dollar has been gaining against the yen for ten days and this week the euro joined in its modest advance.

The dollar rose to 109.90 in early Asian trading on Thursday. This is the highest it has been against the Japanese currency since April 7th and the closest it has been to the important 110.00 level after that day's more than 200 point breakdown.

The euro slipped below 1.1300 moving as low as 1.1269 in New York action, after German politicians criticized the European Central Bank's negative interest rate and quantitative easing policies.  It was the dollar’s best level versus the united currency this week. 

ECB officials defended their policies saying they needed time to work. Bank president Mario Draghi said interest rates will remain at current levels or even lower for an extended period. The bank left is rate and liquidity policies unchanged in today's scheduled decision. 

Behind the strengthening dollar has been a reversal in U.S Treasury rates over the past two weeks.  

The yield on the generic 2-year note has risen 12 basis points to 0.8099 (3:30 pm New York) since its close at 0.6878 on April 7th. It traded as high as 0.8139, its best yield since April 29th.  This is its first close above 0.8000 since April 28th.

The 10 year yield has gained 18 basis point to 1.8663 (3:35 pm New York) since closing at 1.6889 on April 7th. It was the highest for this benchmark rate since March 29th.  

U.S. equities dropped the most in two weeks as disappointing corporate results continued and the nine week rally succumbed to profit taking. The Dow shed 113.75 points, 0.63 percent to close at 17,982.52. The S&P 500 lost 0.52 percent, finishing at 2,091.48, off 10.92 points. The NASDAQ slipped a bare 0.05 percent, 2.24 points to 4,945.89.

West Texas Intermediate closed on that Nymex at $43.18 after trading as high as $44.49, its best trade and finish since November 10th last year.

 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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