Sun, May 28, 2023

Dollar gains momentum as euro and sterling stall


Market assumptions have shifted sharply. At the same time, the dollar‘s downward momentum has paused, implying that the US-backed currency may be regaining some of the strength it lost recently as interest rates moved.

The euro has moved to $1.092 twice in the past two days but has stalled. Similarly, the sterling advanced to $1.24 but failed to rise above it. The dollar index bounced back after hitting 102.00 yesterday for the first time since early February. Further buying in the dollar left the day’s momentum high before the North American market opened.

Shares of financial institutions are still facing stress today. Rumors are circulating that Asian banks’ AT1 securities have a comparable framework to those of Swiss banks. The Topix Bank index dropped 0.76% today, increasing its weekly decline to 1.4% following last week’s 10.56% decrease. Today, the Stoxx 600 bank index in Europe plummeted by 5.8%, its most substantial decrease in one week. This week, there has been a decrease of 2.3%, following a decline of 13.5% the previous week.

Asia Pacific, Europe, and U.S. stock futures markets are lower than expected. Benchmark 10-year yields are 11-17bp lower in Europe, with peripheral premiums rising. The 10-year Treasury yield is up 13 bp to nearly 3.28%. U.S. two-year yields are below 25 bp. Gold is firmer, near $2,000. WTI May hit $71.66 but rebounded today amid concerns that the U.S. is in no rush to expand its strategic holdings. It is trading near $67.36, showing little change this week.

The euro was close to $1.0671 last week. Unless it closes lower today, it will be the euro’s fourth straight weekly advance. Sterling has improved somewhat. It hit a high near $1.2346 yesterday and is above $1.2200 today. It has hit a retracement target since mid-March, and the next bounce is near $1.2176. The intraday momentum indicators are overextended. Sterling was close to $1.2176 last week.



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