Rising US Yields Drive Dollar Buying on ‘Over-Caffeinated’ Markets
“Once again, we have the impression that USD strength due to higher yields is the dominant factor, rather than equity strength on hope for a solution for Greece.” – Piet Lammens at KBC Markets.
The dollar remains comfortably bid against its European counterparts at the present time with continued buying of US sovereign debt being the prime driver of the moves.
Further pressuring the euro dollar exchange rate lower was the failure to arrive at any kind of deal concerning the Greek debt impasse.
There were again no important eco data in Europe.
“Most markets were in a wait‐and‐see modus looking for news from the negotiations between Greece and its creditors ahead of tomorrow’s Eurogroup meeting,” notes Piet Lammens, analyst with KBC Markets.
US bond yields maintain their post‐payrolls upward trajectory and bond yield differentials between the US and Europe/Germany drifted further in favour of the dollar.
Dollar strength also helped European equities regain ground even as uncertainty on Greece persisted.
Early in afternoon trade, equities and the euro jumped temporary higher on headlines that the EU would propose a 6 months delay/debt extension to Greece.
EUR/USD spiked temporary to the 1.1340 area upon these headlines.
However, the EU commission soon said that there was no formal proposal.
“There are alternative claims that Brussels are furious with these ‘misleading’ leaks, and that the constant stream of rumours are harming Greece’s chance of a deal. The jittery behaviour of the markets, which have a distinctly over-caffeinated tone, is largely due to these unconfirmed Eurozone reports taking centre stage due to the lack of significant economic data at the start of this week,” says Connor Campbell at Spreadex.
EUR/USD swiftly returned back to the 1.13 area.
“Once again, we have the impression that USD strength due to higher yields is the dominant factor, rather than equity strength on hope for a solution for Greece,” says Lammens.
On the docket were the NFIB small business confidence figures which undershot consensus by quite a wide margin (97.9 VS 101), but as usual the impact on currencies and bond was very limited.
In Norway, the CPI (2.0%) and the underlying CPI (2.4%) declined less than expected. This suggests that there is no need for the Norges bank to ease policy further.
The Norwegian Krone jumped from EUR/NOK 8.61 area to the 8.5550 area.
In addition, the recent uptrend in the NOK is also still supported by the bottoming out process in the oil price.
