Treasury yields in the US continued their climb higher with the 10-year hitting the highest level since 2007. The moved pulled the US dollar higher once again, although risk appetite remains mixed as traders wrestle the current geopolitical concerns over rising yields. Markets will be looking for further clues on the US outlook later today as we await the release of weekly jobless claims, Philly Fed Business Outlook, and a plethora of Fed speakers. However, this evening’s main event will be a speech from Fed Chairman Jerome Powell, who speaks at the Economic Club of New York. The Chairman is likely to continue recent ‘higher for longer’ rhetoric suggesting that interest rates are at or near the peak.
The single currency remains rangebound, with EURUSD capped around 1.06 and consolidating in the low 1.05’s. Yesterday’s final estimate for eurozone inflation came out inline with expectations, barely moving the pair, with ongoing geopolitical headlines and treasury yields currently dictating the outlook. EURUSD remains below both the 50 and 200-day MA, affirming a bearish signal with the pair likely to drift lower with a break of the psychological 1.05 area opening a test of 1.0450.
The pound failed to hold on to its initial post UK CPI gain yesterday, with GBPUSD running in to offers above 1.22. There are a swathe of option strikes around 1.22 which are also keeping a cap on the pair as traders sell to defend the level. The bias remains to the downside, with recession fears increasing based on a combination of elevated interest rates and sticky inflation. Initial support sits at 1.21, and a breach of this level brings 1.2050 and 1.1955 into play.
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