US Treasury Steepens as Forex Rates Swing
The United States (U.S) Treasury yield curve steepening shows it is behaving according to the traditional pattern as the end of the interest-rate hiking cycle is getting closer, Allan von Mehren, director at Danske Bank, says in a note.
“The curve begins to steepen ahead of the first rate cut,” he says. Given the high correlation between the U.S. and core-EU curves, European yield curves follow the U.S. one even though Danske Bank’s analysts still expect the ECB to raise the deposit rate to 4%, von Mehren says.
USD, GBP, EUR Swing
The dollar is likely to weaken as concerns remain about U.S. regional banking troubles, which should keep alive the prospect of the Federal Reserve cutting interest rates later this year, ING currency analyst Francesco Pesole says in a note.
“A situation that neither develops into a fully-fledged systemic crisis (which would be dollar positive) nor significantly improves on the U.S. regional banking side, which should keep markets betting on Fed easing later this year” endorses ING’s “baseline bearish bias on the dollar,” he says.
The DXY dollar index rises 0.2% to 102.717, having dropped to a seven-week low of 101.9150 on Thursday.
Sterling rises versus the euro but falls against the dollar as traders digest the latest U.K. retail sales and purchasing managers’ index data along with remarks from Bank of England Governor Andrew Bailey.
U.K. retail sales rose 1.2% month-on-month in February, more than the 0.3% increase expected by analysts in a WSJ survey.
However, the S&P U.K. composite PMI, which measures services and manufacturing activity, dropped to 52.2 in March from 53.1 in February against an expected 52.6.
Meanwhile, Bailey told the BBC’s Today program that interest rates will rise further if firms raise prices. GBP/USD falls 0.5% to 1.2214 but EUR/GBP declines 0.3% to 0.8786.
The offshore Yuan depreciated past 6.83 per US dollar, retreating from five-week highs as lingering concerns about the global banking crisis and brewing Sino-US tensions weighed on sentiment.
US lawmakers recently interrogated TikTok’s Chief Executive about potential Chinese influence over the platform, while China’s military said it had driven away a US destroyer that entered waters around the Paracel Islands in the South China Sea.
On the monetary policy front, the Yuan came under pressure from prospects of increased liquidity after the People’s Bank of China announced a surprise cut to banks’ reserve requirement ratio for the first time this year to aid the economic recovery.
The central bank also held its key lending rates steady at its March fixing, with the one-year loan prime rate at 3.65% and that of the five-year at 4.3%. # US Treasury Steepens as Forex Rates Swing
