EUR/USD: US short-term yields may drift higher, pointing to a slight bearish bias - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that with global equity markets now above levels that immediately preceded the UK Brexit vote there is a much greater chance that financial market focus will shift back to incoming economic data to gauge the next actions to be taken by key central banks.

Key Quotes

“The ECB meets on 21st July and we expect more of what we’ve had at recent meetings – continued dovishness but a message that monetary easing actions have already been taken and that the ECB will take some time to assess the impact of those easing actions. The Brexit fallout and in particular the weakness of banking sector shares will ensure that the general tone from President Draghi is downbeat, leaving the markets speculating that further easing later this year is probable. Data-wise it is from the US where attention will be most pronounced with Retail Sales and CPI released tomorrow.

The Beige Book report for the FOMC meeting on 26th-27th July indicated continued modest growth with a continued gradual tightening of the labour market – conditions that would warrant at least one rate hike this year given the receding global financial market risks. Our suspicion is that US short-term yields may drift higher in the week ahead, pointing to a slight bearish bias.”

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