The rise in the dollar over the past few sessions has coincided with a rise in bond yields, with the 10Y now near the top of the 2.45%-2.65% range that has existed for most of the past 2 months. In the wake of the stronger than expected employment report last week, there has been increased talk regarding the timing of the eventual rise in US interest rates, with the Fed’s continued and steady tapering of bond purchases now seen as a given. What’s been noticeable over the past few sessions is that despite the strength seen in the dollar, sterling has shown no signs of giving up any of the gains seen over the past few weeks, cable having made new multi-year highs on Friday.
For the upcoming week, the focus will be on the latest Fed minutes, which will be of greater interest given the focus on the timing of potential rate hikes. Most of the thinking was seen in the projections released at the time of the decision, but the minutes may well shed some more light on this come Wednesday. The Bank of England interest rate decision happens Thursday, although this should not upset sterling as the normal practise is not to release a statement when rates are held steady.
For currencies, we are likely to see a quiet start to the week, with the single currency slightly weaker on the back of the latest industrial production numbers from Germany. These showed a 1.8% decline in May. Sterling continued to defy over-bought indications on the charts and the longer this remains the case, the less likely they are going to come to fruition. Meanwhile, the Aussie is on the defensive around the 0.9350 in the wake of comments from the central bank governor last week.