Suggestions that the US dollar's rally is coming to an end might be premature. On Tuesday it shared first place for a second successive day, this time with the Swiss franc. Ostensibly the rise was driven by decent US retail sales data but that looks more like an excuse than a reason.
There is reasonable correlation, at the moment, between US Treasury bond yields and dollar strength. For a couple of weeks the yield on 10-year bonds has been flirting with the 3% level. Yesterday it hit 3.08%, marking a seven-year high, and the DXY dollar index touched its best level since the beginning of January. At 3.08% treasuries offer a better return than any other major currency (Germany/euro 0.63%, Britain 1.51%, Switzerland 0.07%, Japan 0.05%), hence the appetite to buy dollars with which to acquire them.
The dollar moved a third of a cent higher against sterling and took more than four fifths of a cent off the euro. Some commentators credited its rise to a 0.3% monthly increase in US retail sales but the sales data were in line with forecast, so that seems unlikely: investors just wanted dollars.
Subtle sterling strength
It was not a huge day for the pound but on balance it went well. Sterling took third place behind the dollar and the franc, averaging a gain of 0.2%. The pound's performance very definitely was the result of helpful economic data, in this case the UK employment and wages numbers.
Investors were clearly nervous that there would be a rerun of the shake-out that took place following the previous month's employment data: the pound dipped ahead of their release. However, the numbers this time were up to scratch. Total earnings were up by an annual 2.6% and basis wages - excluding bonuses - rose by 2.9%. Both of those were on the right side of the 2.5% inflation reading.
Sterling did not exactly fly but it avoided a repeat of last month's plummet. The pound picked up half a euro cent, edged ahead of the commodity dollars and remained flat against the yen.
Output and prices
Early this morning Japan revealed that its economy shrank by a provisional 0.2% in the first quarter and Germany announced unchanged inflation rates of 1.6% (CPI) and 1.4% (HICP). Neither the yen nor the euro was affected. The pan-Euroland inflation figures come out this morning.
Inflation for the euro zone is supposed to be unchanged at 1.2%. The number would have to be wildly different from that before it would alter expectations for European Central Bank policy. There are no other crucial €Z data and none at all from the UK.
After lunch The United States reports on building permits, housing starts and industrial production and Canada releases the figures for manufacturing shipments. There are speaking engagements for senior honchos from the ECB, the Swiss National Bank, the Federal Reserve and the Bank of Canada. The Australian jobs data come out tonight.