US Dollar

After a moderate pullback last week on soft US inflation readings, the US dollar has rebounded strongly this week to resume and extend its rising trend that has been in place for the past month. This strong rebound and recent overall support for the US dollar have been driven in part by rising interest rate expectations as displayed in surging government bond yields, despite tepid inflation readings within the past two weeks. This week, the benchmark 10-year US Treasury yield rose above 3.10%, marking its highest point since mid-2011.

The sell-off in the EUR/USD seems to have come to a halt around 1.1770, possibly due to oversold technical conditions. Euro has moved since, above 1.18 levels despite the 10-year treasury yield rising to a fresh 7-year high of 3.128%. A corrective rally is possible, and could gather steam on the back of the above-forecast German producer price index (PPI) and the wholesale price index (WPI) reading. That said, there is limited upside potential as the yield spread will likely continue rising in the USD-positive manner, courtesy of the Fed-ECB monetary policy divergence.

The GBP/USD is still trading into 1.3500 as Friday’s London market session rounds the corner, and the Sterling is set wrap up a rough week of trading against the US Dollar. Earnings figures earlier in the week failed to inspire confidence in the GBP, and an otherwise quiet week with little economic data on the docket has left the GBP/USD to cycle within May’s range around the 1.3500 major handle, and traders will have to look forward to Wednesday’s CPI figures next week for inspiration.

USD/JPY is up to the highs again supported by US yield hitting a 7-year high. USD/JPY is currently trading at 110.86 with an Asian low of just 110.76. Another supporting factor was a clean sheet of positive data from the overnight session in New York with the Initial jobless claims increasing marginally by 11k to 222k in the week ending 12 May, while Japan’s data has been slightly off the estimations.

WTI capped at multi-year highs with geopolitical angst and supply concerns help boost the price of oil. On the geopolitical front, the U.S. has said it is possible there will be secondary sanctions imposed on European companies who continue to deal with Iran and European companies are already starting to pull back from Iran.

Gold fell to $1,284.50 on yesterday’s session – the lowest level since Dec. 27 and is currently trading at $1,289 amid rising Treasury yields. Gold remains vulnerable, under $1,300/oz. as higher US yields continue to limit any recovery and remain supportive of the US Dollar.