US 10-year Yields Rise to 4-month Highs

LCG Research Team: The US dollar gained against all of its G10 counterparts and the majority of emerging market currencies, as Chicago Fed Evans said that a Federal Reserve (Fed) rate hike in December ‘would not surprise’, and that ‘the recent jobs report was a pretty good number’ in a speech given in Sydney.

The US 10-year bond yields rose to 1.7726%, the highest levels since June.

The greenback advanced to 104.07 against the yen, as buyers jumped on the back of a bull following a better-than-expected trade surplus in Japan. The sharp rise in US yields is supportive of a further recovery in the USDJPY, towards the 105.00/105.30 zone.

The euro cleared the mid-term support at 1.1120 against the US dollar and prepares to test the 1.1085 before bringing the 1.1000 handle back on the radar. The euro-pound remained in demand above the 0.9000 level.

The recovery in the pound idles on growing Brexit uncertainties as UK policymakers fail to give clear answers regarding Britain’s exiting strategies from the European Union. The market continues pricing the risk of a ‘hard Brexit’, causing a significant downside shift in the long-term predictions regarding the pound’s value.

FTSE 100 stocks started the day upbeat, as the barrel of WTI traded above $50 for the first time since June. Despite concerns that the recent OPEC deal may not be enough to narrow the gap between global supply and demand sufficiently, big players, including Goldman Sachs, see a greater chance of a further accord on oil production, given that the non-OPEC countries would react to higher oil prices and jeopardise the positive impact of the production cut on oil prices.

The Loonie is testing the 0.76 handle against the US dollar. The broad-based appreciation in the US dollar prevents a positive breakout heading into the release of the Fed meeting minutes due on Wednesday. A dovish shift in Fed expectations could pave the way towards the 0.77/0.78 area in CADUSD, combined with sustainable gains in the oil markets.

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