Markets are reacting to comments from Dallas Federal Reserve Head Kaplan this morning after he said that the central bank would have a “serious discussion” about tapering QE if the US economy continues to improve as expected.
The main moves have once again been in the US bond market in early morning trade, as the yield curve continues to steepen over the prospect of massive incoming stimulus, following the Democratic in Georgia last week which gives the party control of both houses of US congress.
To put the recent bond moves into perspective, the US 10-year yield has risen by 23 basis points since the start of the year and is now trading at levels not seen since March last year when COVID-19 initially caused financial markets to crash.
Once again, the rise in US bond yields has helped to underpin the bid tone in the US dollar currency. The greenback is notably firm against the euro and the yen currencies this morning, with only sterling outperforming the US dollar this morning.
Political uncertainty in America is probably stopping the pace of gains in the US dollar index at the moment, as investors and traders still remain somewhat cautious about a sudden reversal due to potential 25th Amendment charges being laid against President Trump.
Asian markets had a positive session, with the Nikkei 225 building on its recent breakout, and the Hang Seng and Shanghai Composite both gaining by more than one percent. Both markets continue to brush-off news of rising and new COVID-19 infections in Japan, China, and large swaths of South-East Asia.
Commodity-related currencies are slightly firmer today, with the AUDUSD and NZDUSD pair gaining by close to (+0.20%). The US dollar is slightly firmer against the South African rand and is close to posting 7 days of gains from the last 8 trading sessions.
Sterling is starting to firm above the 1.3500 level this morning following a quick dip towards the 1.3440 level yesterday. Yesterday’s speech from BoE Governor Bailey failed to generate much volatility for sterling and UK stocks.
The move in sterling this morning could be a reaction to the FTSE100 falling, due to the inverse relationship between sterling and the index and could also be a technical move as bearish news surrounding the UK economy, and potential negative rates in the UK is currently doing the rounds.
External BoE member, Silvana Tenreyro talked up the benefits of negative rates yesterday, while UK Finance Minister Sunak said that the UK economy “would probably get worse before it gets better”.
Gold has seen a notable recovery this morning, following four days of straight losses for the yellow metal. Silver is also firming above the $25.00 level and has notable upcoming resistance at $25.80 and $26.40.
Bitcoin has seen a major recovery this morning and is already trading around $36,000 after tagging $30,000 on Monday. Ethereum and Litecoin have also followed the pioneer crypto higher.
The economic docket is notably light during the European session, the key focuses for traders and investors today will be scheduled speeches from FED Brainard and Rosengren, and US oil stockpile data.