EUR/USD: Limited upside as Europe continues to lag in vaccination roll-out – MUFG

The US dollar has rebounded fuelled first and foremost by the rebound in US Treasury bond yields. Vaccine woes and US-China news also help the greenback, per MUFG Bank.

Key quotes

“The fragility of the UST bond market could reflect the probable expiry of the suspension of a rule that includes UST holdings and reserves in the calculation of a bank’s supplementary leverage ratio. This rule was suspended when the COVID crisis hit but is due to expire at the end of the month. The reinstatement of the regulation means some banks may need to reduce UST bond inventories. A surprise extension of the suspension could have a bigger impact on pushing yields lower.”

“US-China tensions have picked up with the US announcing further restrictions on certain US companies in relation to supplying 5G parts to Huawei Technology Co. USD/Asia has derived some support from this news.” 

“The news that Italy, Denmark, Norway and Iceland have suspended the use of the AstraZeneca vaccine due to health concerns is not good news. Take-up of AstraZeneca is going to suffer further and could start to impact take-up overall and investors will inevitably push back further the timing and/or the extent of the recovery in the euro-zone relative to the US and the UK. Further reason to remain cautious over the extent of upside for EUR/USD over the short-term.”