The Dollar Pops To Start Week

The US dollar caught a strong bid to start the week. The prospects that Yellen will keep the June rate hike in play after the FOMC minutes were seen as diminishing it may be lending the dollar support., though US rates are only slightly firmer.  

After testing $1.1400 in early Asia, the euro has returned toward the pre-weekend lows near $1.1280.  Sterling has slipped through a similar low, though held above last week’s low just below $1.5320. The Antipodean currencies and the Scandis, which were favored last week are buckling under the pressure of the dollar demand. The US dollar is busting through this month’s downtrend line against the Canadian dollar; moving above CAD1.26, after poor retail sales at the end of last week and heightened expectation of another rate cut early next month. 

News that Greece was still preparing its list of measures it proposes to will undertake in exchange for continued funding seemed to weigh on sentiment. The risk is that the list itself becomes the new negotiating front and that these negotiations may have a few more days to play out.   That said, the risks of a Grexit or default appears to have been dramatically reduced.  

While Greece’s stock market is closed, the government’s bonds are trading broadly higher. The 3-year bond yield fell over 200 bp to three week lows.  The 10-year yield is off more than 60 bp to below 9%. Other peripheral European bond markets may not have shown much contagion from Greece, but do seem to be participating in a relief rally. Italian and Spanish 10-year yields are off 6 bp. Portugal’s 10-year yield is off 9 bp and is flirting with US levels for the first time since 2007. Germany yields are firmer on a small unwinding of safe haven flows.  

The main economic news today was the German IFO survey.  It was mixed, but somewhat disappointing given the recent PMI and ZEW surveys. The IFO business climate and expectations showed modest improvement from January, but not as much as expected.  The current assessment actually deteriorated slightly (111.3 from 111.7).