The growth in the yield of US government bonds continues to support the US dollar.
Investors have finally begun to realize that the promised start of the process of reducing the Fed's asset purchases will lead to a logical decrease in the volume of money supply in the American financial market, which will eventually remove a significant amount of dollar liquidity. In turn, this will significantly reduce the volume of speculative capital, not only in the US, but also in other financial markets.
Treasuries' sales are already continuing for the fourth day in a row, which leads to an increase in profitability. Here, the yield of the benchmark 10-year bonds rose from 1.309% to 1.537% over these days. The last time such an increase was observed was in late winter and early spring of this year on the wave of expectations of new stimulus measures from J. Biden and the new wave of coronavirus.
We believe that if the sales in the US government debt market go at such a pace, the benchmark yield will surge to the maximum values of this year, namely 1.776%, and even exceed them. On this wave, there will be increased pressure from the US dollar on the currency markets. The expectation of a "shortage" of the dollar's supply as a funding currency will contribute to an increase in its value, so its movement to the main currencies may lead to local growth, but only in the existing established price ranges for now.
For example, if the decline of commodity currencies is restrained by the growth of demand for commodity and commodity assets amid deferred demand, then the euro and the pound may be under the strongest pressure. Moreover, this can happen despite the growth of stock indices, which previously supported the euro exchange rate, with the pound following behind it.
The narrowing of the dollar supply is unlikely to greatly affect the demand for shares of companies that are growing on the wave of the start of corporate reporting of companies for the third quarter, however, the euro and pound will still experience other problems. The first one is due to the preservation of the ECB's holistic soft position, and the second is not only due to the same view of the monetary policy of the Bank of England, but also because of the big problems in the British economy.
It is likely that the continuation of the yield growth this week will lead to a more noticeable drop in the euro and pound exchange rates, as well as to the continuation of the vertical growth of the USD/JPY pair.
Forecast of the day:
The EUR/USD pair remains under pressure despite the end of the German elections. It is under pressure from rising yields on US Treasuries. If the price falls below the strong support level of 1.1660, it is highly likely that it will decline first to the level of 1.1600, then to 1.1550.
The USD/JPY pair is rising almost vertically upwards amid increasing pressure from the US dollar. We believe that it will make a downward correction to the level of 111.00 before resuming its growth to 111.65.