US Open Note – Dollar bulls outperform as Wall Street prepares for another bumpy day

Christina Parthenidou, XM Investment Research Desk

US futures could face another red day; European stocks recover

Upbeat data releases continued to feed expectations of inflamed prices, and therefore an earlier monetary tightening on Monday, despite central banks using verbal intervention last week to play down any adjustment in their ultra-loose accommodative policy for the next couple of years.

The US 10-year Treasury yield pared earlier losses on Monday to rise as high as 1.6130%, signaling that the downside pressure on Wall Street may stay in play for now. Indeed, futures tracking the S&P 500 and Nasdaq 100 were warning about another bumpy day, ignoring the Senate’s approval of Biden’s $1.9 trillion stimulus plan over the weekend as the news were largely expected.

On the other hand, European indices were set to close with moderate gains as Europe is not as heavily weighted towards growth and overvalued tech stocks as the US is, although bond yields in the region remained elevated. Financial shares registered the most gains in the STOXX 600, bouncing by 1.55% on the day.

Dollar outperforms riskier currencies

The dollar continued to attract buying interest on the back of the reflation story, crawling above the 92.00 level against a basket of major indices. The rally against the safe-haven Japanese yen gained more steam, extending to a new 9-month high of 108.73, while the advance versus the risk-sensitive kiwi was the strongest during the day.

An outstanding upside surprise in the Eurozone’s Sentix index in March brightened the business outlook in the bloc today, though it was not enough to offset the strength in the dollar, with euro/dollar extending its sell-off to a three-month low of 1.1855. The pair, however, is trading within a key restrictive region and near the 200-day simple moving average (SMA), therefore an upside correction cannot be ruled out in the near term.

BoE Bailey comments on inflation

Meanwhile in the UK, the Bank of England’s governor Andrew Bailey speaking at a Resolution Foundation event, said that the risks are currently looking “increasingly two-sided”. From the one hand, the case of negative interest rates will remain an insurance tool in the event recovery disappoints, though whether the bank could hike its rates in response to a rapid increase in inflation pressures, the bank may seek clear evidence before it takes any action.

The headlines did not bring any volatility to the pound, with pound/dollar sidelining slightly above Friday’s one-month low of 1.3777. Euro/pound resumed its negative momentum below the 0.8600 support level, shifting the spotlight towards February’s low of 0.8538.