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Currency Analyst since 2010

USD: the mood is sour

By Mark Jensen

Yesterday the US released mostly good, but relatively minor economic data. Pending home sales rose 5 times more than expected, but positive reaction was tempered by the slowdown in Chicago manufacturing activity. These figures failed to weaken expectations that the Fed will keep an easy monetary policy for some time.

San Francisco Fed President John Williams said on Monday the US central bank will probably need to keep interest rates near zero for at least another year, even as he expressed optimism the economy is on a recovery path.

So, now the general perception is that the Fed will keep interest rates near zero for more than a year.

The benchmark 10-year Treasury yield remains low at 2.54%. The greenback looks less attractive to investors when Treasury yields fall, because lower US yields mean smaller returns on dollar-denominated assets.

US 10-year Treasury yields (Bloomberg)

US dollar index is down to 79.87 from 80.6 at the beginning of June.

US dollar index (Bloomberg)

Investors await the US jobs report, which will be released Thursday and “the unemployment numbers are going to be more critical than ever”. People have started to think about the economic slowdown, and good data may lighten the mood: according to UBS, “there will be some level of comfort if we get the kind of numbers we've been getting.” Economists expect the report to show employers added 212K jobs in June, down from 217K jobs in May, a poll by Reuters says.

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