US Dollar sinks with European rates roaring

NEW YORK (February 20) The US Dollar (USD) is turning deep red ahead of the first US opening bell of this week, with markets seeing European yields soaring against steady US rates. The uptick in European rates comes after an European Central Bank (ECB) report that sees wages in the Eurozone elevated and holding strong, which could push the first ECB rate cut further down the line than first anticipated. Next to that markets are not applauding the overnight move by the People’s Bank of China (PBoC) to cut its 5-year Loan Prime Rate.

China is playing in a whole other ballpark in terms of economic data with deflation, a sluggish job market, a haunted housing market and abating growth. The cuts are bigger than expected, though the market reaction is signalling more needs to be done in order to give China the boost to head back to its pre-pandemic growth and economic levels. 

On the economic data front, The US Treasury will have its work cut out this Tuesday with no less than three bond auctions coming up. For more economic data, most data points are pushed forward to Wednesday due to the public holiday on Monday. All eyes are on the retailers in the stock markets this week with Walmart and Home Depot releasing earnings this Tuesday. 

Daily digest market movers: European rates drive the Greenback weaker

• European bond yields are jumping higher against US bond yields this Tuesday after the European Central Bank (ECB) released a report that revealed wages in the Eurozone are still remaining elevated, which could add to sticky inflatoin in the coming months, pushing back on current rate cut expectations. This pushes the Euro up against the US Dollar to 1.08, a level not seen since February 2nd.
• China has lowered its Loan Prime Rate in the following maturities:
  • 1-year tenor unchanged at 3.45% where 3.40% was expected. 
  • the 5-year tenor cut from 4.20% to 3.95%, where 4.10% was expected.
• European car sales jumped 11% in January. 
• Near 13:55 GMT the Redbook Index is due to be released. Previous was for 2.5%.
• The US Treasury department is doing a triple auction at 16:30 GMT. A 3-month, a 6-month and a 52-week bill will be auctioned. 
• Equities are still in the red, looking for direction. Meanwhile, the extreme end of the risk assets is doing great with Ethereum and Bitcoin jumping substantially higher.  
• The CME Group’s FedWatch Tool is now looking at the March 20th meeting. Expectations for a pause are 91.5%, while 8.5% for a rate cut. 
• The benchmark 10-year US Treasury Note trades a little bit higher, near 4.28%, after its close on Friday at 4.28% and being closed over Monday due to the US public holiday. 

FXStreet