USD up on rising US yields, interest rate expectations

Good morning

Yesterday brought more GBP weakness against USD and EUR which has so far seen GBPUSD down to 1.3225 and GBPEUR to 1.1625, while EURUSD also dropped to 1.1370 overnight.   The USD strength comes as US 10 year yields hit their highest level since July 2007 while US 30 year yields are at their highest since June 2004.  That doesn’t sound great but worth noting they remain well below the UK’s 10 and 30 year gilt yield.  Worth noting that US PMI’s all came in above expectations as well with added support for USD, as does ongoing expectation of further Fed rate rises.  

In the crosses, GBP currently trades at 1.8815, 2.3310, 1.8680 and 209.55 against AUD, NZD, CAD and JPY, the latter coming despite USDJPY trading up to 158.45, its highest level for three weeks.  We had a mixed bag of UK PMI’s yesterday and plenty of political commentary following Burnham’s meeting with Trump.  Meanwhile Tony Blair has piped up, saying Bunrham should start negotiations to rejoin the EU although an EU source has been reported as saying the UK could ultimately be offered a Canada-style membership deal.

Overnight Aussie employment numbers weren’t great, a decent headline looked good initially but the details showed full-time employment actually dropped, with gains made in part-time jobs.  Revisions lower to previous readings didn’t help, nor did a 0.1% increase in the unemployment rate to 4.6%.  The GBPAUD rate above shows AUD weakness compared to yesterday morning, while AUDNZD is back below 1.2400.  Still, an RBA rate rise at next week’s meeting looks on the cards.   Canada’s Carney has said he’ll still look at a trade deal with US but not at the expense of being able to forge closer ties with EU. 

China’s Xi arrived in the US ahead of his meeting with Trump, Xi’s first state visit to US for eleven years.  Their main meeting begins at 4.30pm UK time, a press conference with opening remarks from each leader should take place before at about 3.15pm UK time.     Reports are that the US/China trade truce has been extended for two months from November to January which gives US a bit more certainty over their rare earth material imports. 

SNB kept rates unchanged at their meeting this morning.  USDCHF is at a two year high around 0.8265 and GBPCHF has ticked up to 1.0955 from 1.0905, EURCHF saw a similar size move up to 0.9425.

More central bankers speaking today plus later in the day we’ll look for any commentary from Trump’s meeting with Xi, otherwise keep an eye on those US yields.

Have a great day…

-  09.00 German IFO

-  10.00 ECBs Lane speaks

-  10.30 BoEs Breeden, Dhingra speaks

-  13.30 US initial jobless claims

-  13.30 CAD retail sales

-  13.50 Feds Hammack speaks

-  14.00 Feds Paulson speaks

-  15.00 BoEs Lombardelli speaks

-  15.00 US new home sales

-  15.15 Trump/Xi press conference

-  16.30 Trump/Xi meeting

-  00.01 UK GfK consumer confidence