US dollar rebounds after a sudden jump in US Treasury yields
The British pound declined sharply after relatively disappointing economic numbers by the Office of National Statistics (ONS). The data revealed that the UK economy contracted faster than expected in the fourth quarter. This performance continued in January as the manufacturing and industrial production numbers declined faster than the median estimates. Further, trade between the EU and the UK declined in January because of the hurdles brought about by Brexit. Exports to the EU declined by 40% while imports fell by 28.8%.
The US dollar rose against key peers like the euro and Swiss franc after Joe Biden signed the $1.9 trillion stimulus package. The funds will start being distributed by the Treasury Department later today. As a result, US Treasury yields rose sharply, with the ten-year yield rising to more than 1.60% for the first time this year. The 30-year yield rose to 2.34% while the 2-year rose to 0.15%. These numbers are signs that US inflation will keep rising in the near term.
The euro declined against the US dollar after mixed inflation data from some European countries. According to Destatis, the German headline consumer price index rose from 1.0% in January to 1.3% in February. The harmonised inflation rose to 1.6%, which is slightly below the ECB's target of 2.0%. In Spain, the headline CPI declined from 0.5% to 0.0% while the harmonised figure dropped to - 0.6%. The country's retail sales fell by 9.5% in January. These numbers came a day after the European Central Bank (ECB) delivered its interest rate decision.
The EUR/USD price declined from the intraday high of 1.1990 to 1.1915 as US yields rose. On the hourly chart, the pair managed to move below the ascending channel. It also moved below the 15-day and 25-day exponential moving averages (EMA) and the 23.6% Fibonacci retracement level. The Relative Strength Index (RSI) has also moved to the oversold level. Therefore, the pair will likely continue falling as bears target the next key support at 1.1850.
The USD/CHF bounced back as US yields rose. The pair moved from the intraday low of 0.9230 to 0.9300. On the four-hour chart, the price is above the ascending yellow trendline. It has also moved back above the 25-day and 15-day moving averages while the accumulation and distribution indicator has kept rising. Therefore, in the near term, the pair may continue rising as bulls attempt to retest the YTD high at 0.9357.
The GBP/USD rose to an intraday high of 1.400, which was an important level of resistance. The pair then pulled back after the UK GDP and trade numbers. On the hourly chart, the pair has moved close to the important support at 1.3885. It has also moved below the 25-day exponential moving averages while the MACD and Stochastics have continued to drop. The pair may keep falling ahead of the next BOE decision next week.