PoundSterlingLIVE - Rising U.S. bond yields, a resilient U.S. economy, falling equities and rising oil prices conspire to put the Dollar back on the offensive.
The developments result in the Pound to Dollar exchange rate falling to 1.2080 and puts a retest of 2023 lows at 1.2038 on the near-term agenda, with a potential break below 1.20 possible before the weekend.
U.S. ten-year treasury yields (UST10s) are back in focus with another push to the 5.0% marker underway, reflecting diminished investor demand for these bonds amidst uncertainty over the economic outlook. Rising yields meanwhile raise the cost of money and, in turn, undermine equity markets, both developments proving supportive of the Dollar.
"UST10s are heading back for a test of 5% (4.965%) as twin bond/equity weakness remains the theme, despite the brief pullback at the start of the week. USD remains the top performer," says Elsa Lignos, Global Head FX Strategy at RBC Capital Markets.
Yields were helped by data that showed new home sales in the U.S. surged 12.3% in September to 759K, defying expectations for a rise of 680K. The data confirms the U.S. economy to be in rude health and puts paid to the likelihood of rate cuts at the Federal Reserve coming in early 2024.
This underpins the 'higher for longer' narrative that supports bond yields and the Dollar.
The Dollar pushed the Yen back above 150 while the Euro declined back to EURUSD 1.0540. The Pound-Dollar has meanwhile now fallen for three days in succession and could threaten a break below 1.20 if current trends persist.
A rally in oil prices is also proving supportive of the Dollar, with prices rising by over a per cent on Wednesday night following news that Israel is set to invade the Gaza Strip.
No timeline for an invasion has been given, but the risk of Iran becoming more active in the region grows under such a scenario, potentially leading to oil supply disruptions.
"Dollar strength seems set to persist in the week ahead," says Sean Callow, FX Strategist at Westpac. "Since the Hamas attack on Israel, traditional haven currency the Swiss franc has led the G10, though the US dollar is not far behind."
An original version of this article can be viewed at Pound Sterling Live
