On Tuesday, the USD weakened against the Swiss franc and the euro after the German Bund yields spike overshadowed a similar increase in U.S. Treasury yields, generating European currency demand.
German ten year Bund yields rose sharply by 22 basis points from a session low on Monday of 0.52% to a session high of 0.74% on Tuesday. With the 10 year Treasury yields benchmark in the U.S. hitting 6 month highs of 2.37%, traders were increasingly concerned by the Bund yields move, said analysts.
The one-trillion euro stimulus program from the European Central Bank (ECB) helped drive European rates lower, and in April it seemed that the German ten-year Bund yields were likely to slide into negative territory after hitting record lows of 0.05% on the 17th of April.
According to a chief market strategist from WorldWideMarkets in New Jersey, Joseph Trevisani, there are some serious questions around the effectiveness of the quantitative easing program from the ECB in getting rates to drop and then maintaining them at this low level.
While the EUR was last 0.86% higher against the greenback and trading at $1.12510, the single currency was also set for its 1st session increase in the last 4 sessions against the USD. The euro however remained within ranges recently seen and also stayed below its 2 month high of $1.1392 which it reached on Thursday.
The monetary stimulus from the ECB contrasts with the expected interest rate increase this year by the Federal Reserve in the U.S. which has assisted to drive an almost one-year rally in the USD against a basket of other major currencies. The increase in interest rates by the Fed is expected to boost the dollar by helping to move investment flows into the country.
Meanwhile, the dollar against the Japanese yen was mostly flat and trading at 120.025 yen. Based on a lack of monetary policy developments from the Bank of Japan, against the USD, the JPY has remained range-bound, analysts say. Some analysts say that the dollar will start to rally again once the Federal Reserve comes closer to increasing rates.
Eric Viloria, a currency strategist from New York based Wells Fargo Securities, said that the phase we are in right now seems to be corrective as the broader trends still seem intact, and the dollar should soon resume its course of strengthening.
In other currency news, the dollar last dropped 1.09% against the Swiss franc at 0.92405 while the U.S. dollar index dropped 0.64% at 94.401.
MT4 Chart: EUR/USD
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