Dollar Rises, Stocks Fall As Treasury Yields Rise

The dollar index rose to a seven-week high following the upward momentum of Treasury yields. The 10-year US Treasury yield rose above 3% for the first time since January 2014. The dollar index, which measures its performance against a basket of top currencies, reached a high of 90.1.

The yield hike is supportive of the US dollar because it could lead to a faster pace of rate hikes. However, it is usually bad for stocks because investors tend to move to the better-yielding and low risk treasuries.

In Germany, the Economy Ministry lowered the growth forecasts for the year from 2.4% to 2.3%. Nonetheless, the Ministry believes that the export market will continue to contribute significantly to the country. According to Peter Altmaier, the Federal Minister for Economic Affairs and Energy, the economy will add more than 1 million jobs by 2019, and wage growth will accelerate.

In the United States, Donald Trump met with Emmanuel Macron, the President of France. The meeting was mostly about Syria, Iran, and trade. Following talks, Trump hinted that he could be persuaded to keep the US in the Iran nuclear deal if major issues can be addressed such as the need for a tougher inspection of nuclear facilities. Trump is expected to either abandon or recertify the deal by May 12.

In the European Union, there are growing concerns about the progress of the Brexit negotiations. The issue at hand is a bill passed by the upper house of parliament challenging the government on its plan to quit the customs union. The two sides have outlined different stands on what happens after Brexit. While EU wants the country to remain in the customs union, UK has opposed the proposal.

EUR/USD

The EUR/USD pair continued to fall, reaching an intraday low of 1.2180. The downward momentum came following the movements in the Treasury market. The yield on the 10-year is currently above 3.0%. At the same time, the euro was weighed down by the weak Germany projections. With no major economic data expected today, traders will pay close attention to the treasuries. They will also be waiting for tomorrow’s statement from the ECB.

XAU/USD

The XAU/USD pair moved lower and reached an intraday low of $1320. This was an expected move, following the trends in the Treasury market. Gold is usually quoted in dollars; when the dollar gains the price of gold tends to fall as investors move from gold to dollars. YTD, gold has risen by about 1.8% while the dollar has fallen by 1.30%.  In the short term, traders should watch out for the $1,320 level, which is an important support level.

GBP/USD

Last week, the cable reached a multi-year high of 1.4377 against the dollar. The upward momentum came as traders hoped that high inflation would lead to more rate hikes. The pair reversed after the inflation data was released. Today, the pair continued to slide as disagreements on Brexit and the flattening yield curve boosted the dollar. Traders should now watch out for the important level of 1.3700.