North American FX Open - Rising US yields on upbeat confidence report lift the Usd

US 10 year yields have extended yesterday's gains in overnight trade up above 4.57%, as the upbeat US consumer confidence data from the Conference Board has pushed back US rate expectations even further.

The Conference Board's Consumer Confidence reading for May came in at a much better than expected 102.0, compared to an upwardly revised 97.5 print in April. The consensus forecast for May was 96.0.The improvement was driven by a larger rise in expectations, to 74.6 in May from an upwardly revised 68.8 in April. The headline reading has been above the 100 level in 20 out of the last 22 months.

Goldman Sach's Pasquariello, Global Head of Hedge Fund Coverage declared that "the US is growing above trend .. wages are growing faster than the rest of the inflation basket, so real disposable income is rising .. alongside this is a MASSIVE wealth effect from the stock market and the housing market .. and, all of this comes on top of healthy household balance sheets. .. US consumption is more durable than the bears believe."

The rise in yields has given the Dollar a boost, taking the unit back to levels from the start of this week.

Usd/Jpy has registered a new post intervention high up at 157.40 in Asian trade, helped by comments from the BoJ's Adachi who said that it's important to keep financial conditions easy until the Bank's price stability target is achieved.

Adachi added that he cannot say with certainty for now that the goal will be met. Adachi also acknowledged that its that possible YEN weakness could spur price gains and prompt the admin to consider another rate hike earlier than expected.

Overnight, Australia CPI for April beat expectations at 3.6% y/y vs a 3.4% consensus and 3.5% the month previous, indicating price pressures remain stubbornly high and likely endorsing an unchanged verdict from the RBA in June.

The ECB shouldn t switch to autopilot in cutting interest rates following an expected first move next week, according to Governing Council member Kazaks. He added that a dependence on incoming economic data is still key."

German state CPI point to a likely rise in the headline rate, released later today, to 2.4% y/y, which would be in line with forecasts. The rise was driven by volatile package holidays and base effects in transport services, but elsewhere in most major categories, y/y rates probably eased slightly. 

The single currency did come under pressure after the release, with Eur/Usd slipping to lows for the week down at 1.0829, while Eur/Gbp extended its twenty-one month low to 0.8484. However both pairs quickly snapped back, as dip buyers emerged.

EZ M3 money supply rose to 1.3% y/y as expected.

Today's Beige Book is today's main focus, with the release expected to drive the general tone at the next Fed meeting on June 12th.

The Fed's Williams is the sole central banker scheduled to provide opinion today.

To receive this analysis plus much more, subscribe to IGM. Request your free demo of the service today.