The US Dollar, measured by the Bloomberg Dollar Index, printed new YTD highs on a relatively quiet session impacted by a holiday in the UK and continued pressure on Emerging Markets currencies and the Euro. The USD outperformed most of its G-10 peers, closing 0.2% stronger at its highest level for 2018. The trading session was briefly interrupted by President Donald Trump’s tweet that he’ll announce whether the US stays in the Iran nuclear deal on Tuesday (Wednesday early morning for APAC).
Some mixed commentary came from Fed representatives, with Robert Kaplan (Fed Dallas President) indicating he still sees only three rate hikes this year and that they should continue removing accommodation in a gradual way. In relation to inflation, he mentioned: “We don’t want to run persistently above or below 2%. “ US yields were little changed, but we will see a significant supply of Treasuries this week as quarterly refunding auctions begin Tuesday with a $30 billion sale of 3-year notes.
Currency markets are fully focused on the Iran nuclear deal at the moment, with Trump’s decision due at some point today, the likelihood being that the U.S. will withdraw from the agreement, despite pressure from European governments to stay in. The oil market is seemingly pricing in a withdrawal, with WTI crude trading above 70.00. Either way Trump decides to go, we should see some form of volatility not only in oil prices, but the dollar index and commodity linked currencies at some point this afternoon.