Global Themes

A stronger U.S. dollar scaled multiweek highs against the euro, sterling and Canadian dollar, and its highest in months versus peers from Japan, Switzerland and Australia. The dollar is riding U.S. Treasury yields higher with the 10-year making a close encounter with 3%, a key level it hasn’t touched in years. U.S. yields are bouncing higher in response to solid U.S. data last week, rising inflation expectations and cooling tensions on the trade and geopolitical fronts with China and North Korea, respectively. The Federal Reserve meets next week and while it is not expected to make any policy changes it could use the occasion to telegraph a rate hike as soon as mid-June. The ECB meets Thursday and is not expected to change course on stimulus amid signs of slower European growth over the first quarter. The U.S. and U.K. on Friday release preliminary data on first quarter growth.


The U.S. dollar is increasingly in vogue with the benchmark Treasury yield in striking distance of 3%, a level it last touched 4 years ago. Rising yields largely depict a fundamentally sound U.S. economy which keeps the Fed, which meets next week, on track to raise interest rates multiple times over the balance of the year. How much positive traction the dollar enjoys could hinge on U.S. growth Friday. Forecasts suggest the world’s largest economy started the year slower once again with Q1 GDP expected to moderate to a 2% annual rate from a nearly 3% pace in Q4 2017. A weaker print below 2% would leave the buck’s rally vulnerable.


Sterling slumped to 5-week lows given markets’ second thoughts about Britain raising lending rates as soon as May 10. Market pricing shows about a 60-40 chance of the Bank of England leaving rates unchanged at 0.5% next month after weaker U.K. data last week on inflation and consumer spending and after Gov. Mark Carney sounded more dovish on the policy outlook which catalyzed a marked recalibration in rate hike bets. Meanwhile, U.K. first quarter growth on Friday is forecast to moderate to 0.3% from an already anemic 0.4% in Q4 2017.


From 2-month highs to 2-week lows – Canada’s dollar started the week on its back foot, stung by a rising U.S. dollar, weaker oil markets and largely in check domestic inflation data last week that suggested a low risk of an imminent interest rate hike from 1.25%. A dearth of meaningful Canadian data this week should see the loonie take its cues from external drivers such as the greenback and oil markets.


New 2-week lows for the euro ahead of a policy decision this week from the ECB. The euro is also on its back foot with U.S. yields rising, a move that has widened the gap versus comparable German rates by the most in nearly 3 decades. ECB chief Mario Draghi could be a bit tight lipped on the immediate road ahead for monetary policy with the preponderance of recent European data pointing to moderation over the opening quarter of the year. Mr. Draghi and Co. render their policy decision Thursday at 7 a.m. ET, followed by a presser by the president 90 minutes later.

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