US Dollar Continues Its Growth Amid Rally of Bond Yields

Market Reviews

The US dollar stays strong supported by growth in Treasury yields. 10 year yield reaches 3.049% level (the highest mark since 2011). US economic data showed, that retail sales grew by 0.3% mom in April, in line with forecast. Ex-auto sales increased by also 0.3% mom, below the forecast of 0.5% growth. Empire state manufacturing index increased to 20.1, up from 15.8 and exceeded the forecast of 15.0.

The British pound rose against the US dollar after the release of the report on the labor market in Britain, but then the GBP/USD pair faced resistance and retreated from session highs under the pressure of strengthening the dollar. The UK unemployment rate remained unchanged at a 42-year low of 4.2%, in line with forecasts. Average earnings, excluding bonuses, increased by 2.9% yoy in the three months to March, from 2.8% previously. However, average earnings, including bonuses slowed to 2.6% from 2.8% previously.

The euro also weakened against the US dollar after mixed data on the German ZEW Economic Sentiment for May and GDP data for the Eurozone and Germany. The fall of the EUR/USD pair accelerated after the IMF noted the downside risks for the Eurozone economy. The Eurozone economy expanded by 0.4% in the first quarter, and by 2.5% yoy.

IMF reduces Eurozone growth forecast to 2.3% this year, from 2017’s 2.4%. It is also projected, that the Eurozone GDP will fall to 2.0% in 2019. IMF noted that “with economic prospects continuing to improve in the short term but medium-term prospects less bright, policymakers should seize the moment to rebuild room for fiscal manoeuvre and push forward with reforms to boost growth potential”

Economic growth in Germany, slowed in Q1, with GDP grew by 0.3% in the first three months, the slowest rate since the third quarter of 2016. This compared with 0.4% predicted growth and followed an expansion rate of 0.6% in Q4 2017. On annual basis, the German economy grew by 2.3%, below the forecast of 2.4% growth.