Nov 10 (Reuters) – The dollar index maintained Thursday’s post-Powell and dismal bond auction rally as European yields rose and longer-term Treasury yields corrected.
The dollar and shorter-term Treasury yields gained some traction after the November Michigan consumer sentiment report showed the 1-year inflation outlook climbed to 4.4% from 4.2% in October and September’s 2-1/2 year low at 3.2%, while the 5-year outlook rose to 3.2%, its highest reading since 2011.
The flipside to soaring inflation expectations was the fourth consecutive drop in consumer sentiment, now at its lowest since May at 60.4 versus 63.8 in October.
EUR/USD rose 0.07%, finding support by the 10-day moving average after retracing the bulk of the Friday-Monday rally accelerated by the underwhelming U.S. jobs data.
Bund yields rallied to catch up with the late-Thursday move in the U.S. bond market, while longer-term Treasury yields consolidated the previous session’s spike higher.
Two-year yields rose 3bp, unable to keep pace with a 6.6bp rise in 2-year bund yields.
Somewhat hawkish comments from ECB President Christine Lagarde likely lent euro zone yields support as well.
USD/JPY, with only a modest rise in JGB yields Friday to defend it against Thursday’s surge in Treasury yields, rose 0.15%, nearly reaching this year’s 151.74 high by 2022’s 32-year peak at 151.94.
Judging by the lack of downside hedging in the options market, this year’s uptrend is expected to test last year’s peak and any pushback Japan’s MoF might provide on the yen’s behalf. BoJ policy remains highly accommodative and is only gradually loosening its cap in JGB yields.
Sterling was flat, earlier extending its slide following Monday’s failed attempt to clear the 200-DMA, despite a bounce in 2-year gilt-Treasury yield spreads from Thursday’s lowest level since April and 6.5bp rebound in 10-year spreads.
The FTSE’s 1.28% fall and flat-lined UK GDP left risk-sensitive cable to founder ahead of major UK data next week.
High beta currencies were modestly lower.
U.S. CPI on Tuesday and Wednesday’s retail sales and PPI are the next key event risks, with all three forecast to be on the mild side.
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(Editing by Burton Frierson Randolph Donney is a Reuters market analyst. The views expressed are his own.)
((Randolph.donney@thomsonreuters.com))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
