The Dollar hasn’t been able to hold on to Tuesday’s gains which took its index against a basket of major currencies to a high of 92.27; the best since December 28th. It closed in New York down just one-tenth from the high and though it held steady overnight in Asia, it has been battered lower in the European morning after reported comments that officials that who are reviewing China's FX holdings have recommended slowing or halting buying of US Treasuries. As we publish this commentary, the USD index has been sold down to a low of 91.60.
The Chinese comments said that US government bonds are becoming less attractive relative to other assets and that trade tensions with the US may provide a reason to slow or stop buying American debt. The headlines flashing across screens this morning came at a sensitive time for bond markets after the yield on US 10-year Treasuries rose 6bp on Tuesday to 2.54%; the highest since March 2017, whilst the yield curve from two to 10 years steepened by 5.4 basis points, the most in over a year, to 57.4bp. In European today, US 10-year yields added another five basis points to 2.59%.
For the moment, stock markets have shrugged off this development but don’t be surprised to hear it as an explanation the next time that equity indices end lower. And on that subject, a fascinating study from BoA Merril Lynch shows that, “Since March 16, 2016, the S&P 500 has gone for 386 trading sessions without a 5% drawdown. If the trend persists, in just 10 more days this will be the longest stretch without such a drawdown in history.” Wow…
There’s no major US economic releases scheduled today, though we will get to see import prices and wholesale inventories, which feed directly into GDP. The Atlanta Fed’s GDPNow model – which is generally the most accurate and up to date predictor of the US economy – currently estimates the GDP growth in fourth quarter of 2017 at an annualized pace of 2.7%, down from 3.2% on January 3. It will update its forecasts later today after the inventory numbers are published.
The US Dollar index opens in North America this Wednesday morning at 91.60.