The dollar gained across the board this morning as the 10-year U.S. Treasury yield hits its highest point since 2011. The sterling got a brief boost overnight from a rumor of the U.K. staying in the E.U. customs union before Downing Street denied the plan. Brent crude oil reached its highest level since 2014. And U.S. weekly jobless claims came out mixed Thursday morning.
Geopolitical tensions loom over dollar’s strength
The dollar is continuing its gains against its major peers thanks to rising U.S. Treasury yields, but tensions with the European Union on trade and with N. Korea on demands for denuclearization are looming in the background.
The 10-year yield benchmark hit 3.1% Wednesday afternoon and is still above the mark this morning. This is the highest level for the benchmark since 2014. The 30-year yield also reached its highest level since 2015.
The dollar’s strength is holding down the EUR/USD, bouncing above and below 1.180. The pair is also trading down on concerns over the new coalition Italian government weighing on the euro.
JPY/USD is rising to its highest levels since January of this year, trading around 110.7 Thursday morning. The rising Treasury yields are helping the dollar against the Japanese yen, but if the U.S.-North Korea summit collapses, we could see investors running to the safe-haven yen. Japanese CPI numbers are due overnight tonight.
The White House distanced itself from National Security Advisor John Bolton’s comments that North Korea should follow the “Libya model” and quickly abandon its nuclear program. Press Secretary Sarah Sanders said there isn’t a “cookie-cutter model.” Although the June 12 summit between Trump and Kim Jong Un is still officially happening, North Korea has shown public outrage over the U.S. demands, putting the meeting into question.
Meanwhile European Union presented a united front against President Trump’s threats to penalize E.U. businesses. The leaders agreed that they won’t negotiate on trade unless the U.S. gives an exemption on its steel and aluminum tariff. All 28 leaders are in Bulgaria this week to set a unified position on trade and the Iran deal. Trump withdrew the U.S. from the Iran deal last week. The remaining countries insist while the deal is not perfect, it is working.
Sterling gets psyched out
The pound got a boost overnight when reports of Prime Minister Theresa May’s government planning to stay in the E.U. customs union after 2021 surfaced.
GBP/USD jumped to above 1.356 on the news. However, when May officially denied the report, the pair fell to 1.352 before reaching as low as 1.347 this morning.
“The United Kingdom will be leaving the customs union, we are leaving the European Union,” May said, adding that her government will be negotiating future customs arrangements with the E.U.
Mixed market data
If you watched closely, you may have seen the dollar’s strength falter briefly this morning after some mixed economic data was released.
Weekly jobless claims told two stories as initial jobless claims for the week ending May 11 came out higher-than-expected and continuing jobless claims for the week ending May 4 were less-than-expected.
The U.S. saw 222,000 people apply for unemployment during the week, compared to estimates of 215,000 and 211,000 the previous week. The number of people receiving unemployment benefits dipped to 1.707 million compared to 1.78 million expected and 1.794 million the week prior.
The dollar gave back some gains around the time of the release, but not enough to allow the euro or pound to attempt a recovery since U.S. Treasury yields remained up around 3.1%.
A better-than-expected Philadelphia Fed Manufacturing survey helped the dollar’s strength, too. The manufacturing index came out at 34.4 compared to estimates of 21.0.
Friday’s economic data will focus on Canada’s retail sales and consumer price index.