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The US dollar continues higher despite falling yields and as the US considers news stimulus. The Fed Chair dismissed long-term inflation concerns. He speaks again alongside the Treasury Secretary. US Durable Goods Orders and Markit’s PMIs are eyed.
Greenback grinding higher: EUR/USD is flirting with the lowest levels in four months, GBP/USD is battling to hold onto 1.37 and commodity currencies are also on the back foot. The world’s reserve currency is rising despite the fall in yields, with returns on ten-year Treasuries falling to 1.60%.
The dollar and the yen are benefiting from a risk-off mood in markets, but speculation about new US stimulus – partially funded by tax hikes may also explain the moves. The White House is mulling a $3 trillion infrastructure spending package, potentially in two stages.
Testimonies: US Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell have testified before Congress and will return to Capitol Hill on Wednesday. Powell acknowledged that inflation will probably rise in the next few months, but will not be persistent.
US Durable Goods Orders figures for February are set to show a moderate increase in investment last month, contributing to robust growth. Markit’s preliminary Purchasing Managers’ Indexes for March are also of interest.
The GBP/USD pair has breached key downside support and may extend the fall to the 1.3610/00 neighborhood, economists at OCBC bank report.
“The GBP/USD lost the 1.3800 support quickly overnight, and the initial attempt to retake it failed. This perhaps points to further downside, and the next target may be the 1.3600/10 area.”
“Pace of vaccination in the UK is likely to slow, and this should lead to a partial reversal in GBP gains since 4Q 2020.”
WTI crude had another dismal day, plunging over 6% on Tuesday. Rising virus cases in Europe are proving to be the catalyst in oil’s selloff. Bart Melek, Head of Commodity Strategy at TD Securities, notes that WTI has room to sink to the $52 level.
“The swing lower was triggered by the deteriorating near-term demand outlook in the face of still hampered refineries, surging interest rates and renewed European lockdowns. Expectations that China will import more Iranian oil also played a roll in driving crude prices lower.”
“Given that many in the market believe that Chinese imports of Iranian oil will increase to as much as 856,000 bpd (+129% from February), and considering that the sudden influx of Iranian oil is causing congestion in ports, as tankers are offloaded, there may be less able to offload supplies from other sources. This in combination with Saudi Arabia possibly reversing its one million b/d production cuts, and more OPEC+ oil overall could mean that WTI is at risk of correcting all the way down to $52/b.”
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