The greenback rallied across the board as global equity market and US bond market declined. The euro broke a resistance at 1.3370 to as low as 1.3320 versus the dollar. The sterling fell sharply below last month¡¯s low at 1.9675 and reached 1.9624 against the dollar.
US 10-year Treasury notes yield rose to 5.2%, the highest in 11 months. Also, the yield differential between US 10-year notes and German equivalents widened to a 2 month high. There are two main factors that pushed the yield up and drove bond prices down. Firstly, New Zealand central bank unexpectedly raised interest rates to 8% and the European central bank lifted rates to 4%. This indicates an upward trend in the global interest rates. Secondly, the market finally eliminated speculations about a Fed rate cut within this year under recent robust US data.
The dollar remained firm after a report today showed US trade deficit narrowed from 63.5 billion to 54.9 billion in April.
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