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    Euro rises on continued bond market volatility and brighter outlook

    EUR

    The euro strengthened against most counterparts on Tuesday after confirmation that Greece had re-paid back a 750 m loan to the IMF, after concerns it would default. The Bank of Greece said it had sourced the money from one of its emergency liquidity funds.

    The single currency also rose on the continued euro-zone bond sell-off as it resulted in rising yields, attracting yield-hungry investors. The reason for the rise in borrowing costs was put down to a massive shift in inflation and growth expectations for the region. German bond yields shot up further, narrowing the gap with U.S treasuries, and drawing investors away from the transatlantic competitors.

    USD

    The dollar fell on Tuesday as massive volatility in international bond markets weighed on the greenback.

    An extraordinary rise in euro-zone bond yields – including German bonds which spiked higher again, supported the euro, and are expected to act as a magnet to yield-hungry investors who might normally have invested in U.S Treasuries.

    The volatile twists and turns of the bond market were caused, it was said, by a sudden reappraisal of the economic outlook for the euro-area, and a readjustment in inflation expectations for the region, which had been extremely deflationary previously but picked up since the ECB launched its QE programme, and reports of green shoots in economies such as Spain warranted a new-found optimism.

    Commentary from Fed voting member Williams reiterated comments he made yesterday that “every meeting was now on the table. (for a rate hike lift-off).” This had helped strengthen the dollar previously but failed to on Tuesday.

    Fed’s Dudley was quite non-committal in his comments saying: “I don’t know when the Fed will hike rates.”

    GBP

    The pound continued its post election rally on Tuesday after strong Industrial Production and Manufacturing data helped support the outlook for the U.K economy.

    Industrial Production in April rose by an expectation-beating 0.5% mom and 0.7% yoy – higher than analyst’s estimates of 0.1% mom and 0.7% yoy.

    Manufacturing Production meanwhile increased by 0.4% mom and 1.1% yoy – also beating forecasts of 0.3% mom and 1.0% yoy.

    Some analysts argued manufacturing was still lagging behind other sectors in the recovery, such as services, despite the upward revision.

    NIESR’s monthly GDP estimates showed a rise in growth by a basis point, to 0.4% in April, which compared favourably to 0.3% in March, further adding to the stream of positive data on the day.

    JPY

    The yen traded on a weaker footing early Tuesday morning trading at 120.18 per dollar in the Asian session, slightly higher than the previous night’s close.

    Overnight data showed Japan’s reserves widened to $1,250.1bn in April, from the prior level of 1,245.3bn

    The BOJ’s Kuroda said in Parliament today that the central bank was not considering lowering or cancelling interest paid on excess reserves held at the bank as paying interest on excess reserves contributes to meeting the goal of expanding the monetary base.

    The Abe administration plans to set a medium term target to achieve its fiscal reform in fiscal year 2020, aiming to reduce the ratio of primary deficit to gross domestic product to around 1% in fiscal year 2018 sources said on Monday.

    Trading friends for the next few days are expected to be determined by the preliminary estimate of Japan’s leading economic and coincident indices data scheduled in a few hours.

    EUR

    The euro strengthened against most counterparts on Tuesday after confirmation that Greece had re-paid back a 750 m loan to the IMF, after concerns it would default. The Bank of Greece said it had sourced the money from one of its emergency liquidity funds.

    The single currency also rose on the continued euro-zone bond sell-off as it resulted in rising yields, attracting yield-hungry investors. The reason for the rise in borrowing costs was put down to a massive shift in inflation and growth expectations for the region. German bond yields shot up further, narrowing the gap with U.S treasuries, and drawing investors away from the transatlantic competitors.

    USD

    The dollar fell on Tuesday as massive volatility in international bond markets weighed on the greenback.

    An extraordinary rise in euro-zone bond yields – including German bonds which spiked higher again, supported the euro, and are expected to act as a magnet to yield-hungry investors who might normally have invested in U.S Treasuries.

    The volatile twists and turns of the bond market were caused, it was said, by a sudden reappraisal of the economic outlook for the euro-area, and a readjustment in inflation expectations for the region, which had been extremely deflationary previously but picked up since the ECB launched its QE programme, and reports of green shoots in economies such as Spain warranted a new-found optimism.

    Commentary from Fed voting member Williams reiterated comments he made yesterday that “every meeting was now on the table. (for a rate hike lift-off).” This had helped strengthen the dollar previously but failed to on Tuesday.

    Fed’s Dudley was quite non-committal in his comments saying: “I don’t know when the Fed will hike rates.”

    GBP

    The pound continued its post election rally on Tuesday after strong Industrial Production and Manufacturing data helped support the outlook for the U.K economy.

    Industrial Production in April rose by an expectation-beating 0.5% mom and 0.7% yoy – higher than analyst’s estimates of 0.1% mom and 0.7% yoy.

    Manufacturing Production meanwhile increased by 0.4% mom and 1.1% yoy – also beating forecasts of 0.3% mom and 1.0% yoy.

    Some analysts argued manufacturing was still lagging behind other sectors in the recovery, such as services, despite the upward revision.

    NIESR’s monthly GDP estimates showed a rise in growth by a basis point, to 0.4% in April, which compared favourably to 0.3% in March, further adding to the stream of positive data on the day.

    JPY

    The yen traded on a weaker footing early Tuesday morning trading at 120.18 per dollar in the Asian session, slightly higher than the previous night’s close.

    Overnight data showed Japan’s reserves widened to $1,250.1bn in April, from the prior level of 1,245.3bn

    The BOJ’s Kuroda said in Parliament today that the central bank was not considering lowering or cancelling interest paid on excess reserves held at the bank as paying interest on excess reserves contributes to meeting the goal of expanding the monetary base.

    The Abe administration plans to set a medium term target to achieve its fiscal reform in fiscal year 2020, aiming to reduce the ratio of primary deficit to gross domestic product to around 1% in fiscal year 2018 sources said on Monday.

    Trading friends for the next few days are expected to be determined by the preliminary estimate of Japan’s leading economic and coincident indices data scheduled in a few hours.


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