U.S Dollar Rises Further as Yield Curve Steepens
The US dollar was stronger against its major trading partners early Friday ahead of another busy data schedule that includes the Federal Reserve’s preferred inflation measure for December.
The US Treasury’s 7-year auction hit a high yield of 1.769% on Thursday, up from the 1.48% high in the previous auction. The personal consumption expenditure (PCE) price index is expected to rise by 0.4% overall and 0.5% excluding food and energy when it is released at 8:30 am ET. The expected monthly gains would lift the year-over-year rates slightly.
In its post-meeting statement Wednesday, the Federal Open Market Committee said that it expects it will “soon” need to raise interest rates to contain inflation expectations, which most have interpreted as suggesting an increase at the March 15-16 meeting.
Data on personal income and spending, the Employment Cost Index for Q4, and the final Michigan Sentiment index for January will also be released on Friday. A quick summary of foreign exchange action heading into Friday shows that USD-JPY rose to 115.6414 from 115.3633 at the Thursday US close and 115.2241 a day earlier.
Tokyo CPI, released overnight, showed that consumer price inflation slowed in January, with prices falling outright when both food and energy are removed. The yield differential between the US, where the Fed is poised to raise interest rates in March, and Japan continues to widen and is likely to drive the pair higher in the coming months.
USD-CAD rose to 1.2789 from 1.2742 at the Thursday close and 1.2702 a day earlier. The Fed and the Bank of Canada are both expected to raise interest rates at their respective meetings in March, so the data will dictate the direction of the pair leading up to those adjustments. There are no Canadian data scheduled for Friday.
GBP-USD has been trading in a tight range over the last day, sitting at 1.3386, up slightly from 1.3382 at the Thursday US close and just below the 1.3388 level a day ago. Markets are expecting a rate increase at the Bank of England’s meeting on Feb. 3 as a protection against rising prices and wages. There are no UK data scheduled for release on Friday.
EUR-USD fell to 1.1139 from 1.1144 at the Thursday US close and from 1.1168 a day earlier, as the distance between the Fed and European Central Bank’s respective monetary policy paths is becoming clear.
The ECB will meet on Feb. 3 and is expected to maintain its relatively dovish stance, particularly as tensions rise in Eastern Europe. Earlier Friday, EU consumer confidence data confirmed a decline seen in the flash estimate for January, with a similar decline in Italy.
Economic growth estimates for Q4 were mixed, with stronger-than-expected growth in Spain, but a decline in Germany.
The US Treasury’s 7-year auction hit a high yield of 1.769% on Thursday, up from the 1.48% high in the previous auction. The bid-to-cover ratio for the auction was 2.36, higher than the 2.21 ratio in the previous auction.
Dealers represented 55.57% of the bids, with direct bidders at 13.82% and indirect bidders at 30.61%. For takedown, dealers took 14.49%, with direct bidders at 22.86% and indirects were awarded 62.65%.
The US Treasury’s 5-year auction hit a high yield of 1.533% Tuesday, well above the 1.263% high in the previous auction. The bid to cover ratio for the auction was 2.50, up from 2.41 in the previous auction.
Dealers represented 56.1% of the bids, with direct bidders at 11.17% and indirect bidders at 32.73%. For takedown, bidders took 14.8%, with direct bidders at 16.48% and indirects awarded 68.72%.
US 2-Year FRN Auction High Discount Margin Declines
The US Treasury’s 2-year FRN auction hit a high discount margin of -0.015% on Wednesday, lower than the 0.03% high in the previous auction. The bid to cover ratio for the auction was 3.34, down from the 4.03 ratio in the previous auction.
Dealers represented 65.15% of the bids, with direct bidders at 5.07% and indirect bidders at 29.78%. For takedown, dealers took 24.48% and indirects were awarded 75.52%. There were no awards to direct bidders. #U.S Dollar Rises Further as Yield Curve Steepens
