The USD started the week almost flat, after being down more than 0.3% during the previous Friday session. On the back of a spike in US Treasury yields after stronger than expected US Sentiment data (University of Michigan U.S. sentiment Index came at 98.8 vs. 98.3 expected) and after three straight weeks of rising, the USD finally found some topside resistance at its 55-week moving average.
This week also saw US yields spiked to levels not seen since 2011. It all started in Wednesday's Asian session, when the 10-year US Treasury yield broke above 3%, apparently on stop losses, and the USD started gaining momentum. More fuel was added to the fire as the US retails sales met expectations (except for the measure excluding Auto & gas) but most importantly, upside revisions were made to prior month reading. The 10-year Treasury ended the session seven pips higher, and the USD closed more than 0.7% stronger, although it lost a bit momentum towards the end of the session.
Elsewhere, Federal Reserve member Kaplan spoke on Tuesday, highlighting he is watching the yield curve and would not want to inadvertently invert. A June hike according to the market is a done deal at 97%, the focus turns to September and December which are 68% and 42% factored in respectively. Market participant like to get ahead of themselves so the anticipation of a hike in September is accelerating.
In other news, markets this week paid close attention to US-China trade talks as China sent Vice Premier Liu He to Washington on Friday. Donald Trump paved the way for more constructive trade talks with China, helped by his recent green light to the US Commerce Department to save the Chinese company ZTE Corp. from bankruptcy. Key takeaways from the trade talks were Premier Liu imploring that the two countries should work together with mutual respect to promote stability. He said "China is willing to strive together with the United States to appropriately handle and resolve trade issues felt by both sides on a basis of mutual benefit". Trump has also called for the strengthening of trade and investment ties in sectors such as energy, manufacturing and agriculture, as well as pushing ahead work on intellectual property protection. The war of words between U.S. and China may intensify, but market participants believe action will be minimal.