A rise in US yields, notably the 10-year bonds, gave no solace to the beleaguered greenback on Friday. The dollar index closing almost unchanged at 90.70. Support lies nearby at 90.45, but the technical picture suggests further losses to 89.00 in the coming weeks. The US treasury has a heavy bond issuance schedule this week in the three and ten-year notes, as well as the thirty-year bond. That may test the Federal Reserve’s mettle if the market is reluctant to bid strongly with one eye on another trillion dollars of fiscal stimulus. Any support which higher yields lend to the dollar will be short-lived though, with the FOMC sure to act next week to cap yield rises if this week’s auctions go badly.
Pound vulnerable to Brexit uncertainty
Elsewhere, all eyes will be on sterling, which has retreated rapidly from a higher near 1.3550 on Friday, to under 1.3400 this morning, before settling around 1.3430. The down-to-the-wire Brexit trade talks will continue to provide volatility intra-day, leaving traders at the mercy of headlines and rumours. A positive outcome should see GBP/USD quickly rise to test Friday’s highs, and GBP/USD will likely test 1.4000 this week. With markets ignoring the possibility of a Brexit trade agreement failure for months, and clearly long to the gunnels, a failure of the talks will have an outsized adverse reaction on sterling. Sterling should quickly test 1.3280, followed by 1.3200 and 1.3100, with losses potentially extending to the 1.2900 area.
Other currencies remain in a holding pattern in Asia. G-10 and regional currencies are trading almost unchanged from their New York closes, as the market awaits more insight from the US stimulus talks. Concerns over higher US yields appear to be balanced against stimulus hopes today. After an impressive rally last week, EUR/USD could be vulnerable to negative Brexit fallout as well, but losses should be limited to the 1.2000 regions.