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Oct 19 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Down On Treasury Yield Rise, Haven Dollar Demand

By Randolph Donney  —  Oct 19 - 02:10 PM

The dollar index rose about 1% on Wednesday as record euro zone nL8N31K29E and 40-year-high UK nL8N31K14Q inflation heightened recession fears, sending safe-haven flows into the U.S. currency.

Meanwhile, 10-year Treasury yields rose to 14-year highs, adding to support for the dollar.

The recent pullback in gilts yields due to the government's fiscal U-turn and the BoE's attempts to calm markets persisted, but in curve-flattening fashion after the BoE said that QT beginning on Nov.
1 will not involve maturities beyond 20-years.

Investors shrugged off more weak U.S. housing data nL1N31K15W, with a fourth consecutive 75bp Fed rate hike still priced in for Nov.
2 and the early 2023 terminal rate now by 5%.

Gilts yields eased on hopes the worst of the UK pension fund crisis is over nL8N31K53F but have become a drag on sterling as Treasury and bund yields rise to new long-term highs.

Sterling fell 1% to tenkan support just above Monday's 1.1175 low.

EUR/USD fell 0.9% toward tenkan support at 0.9753 amid Wednesday's risk aversion.

USD/JPY was up 0.4% to its highest since 1998 and very nearly at major psychological resistance at 150.
The gain in Treasury yields was unopposed by BoJ-corralled JGB yields and no willingness to lift rates to help the MoF's interventions to support the yen nL1N31K1AB.

USD/JPY cleared technical hurdles near 149.50.
Another bout of Japanese selling would be viewed as a buying opportunity unless materially weaker U.S. employment and inflation data pointed to a nearer peak in Fed funds and Treasury yields.

USD/CNH and USD/CNY were up 0.66% and 0.39%, with the offshore yuan making record highs and USD/CNY close to September's 14-year highs, as the Chinese economy struggles with a weakening property sector, ongoing COVID lockdowns and widening Treasury yields spreads over Chinese government debt.
Also worries about delayed China economic data releases.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary

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