Euro Weakens Against the U.S. Dollar on Bond Yield Differentials

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Euro Weakens Against the U.S. Dollar on Bond Yield DifferentialsThe euro weakened against the dollar on Monday after the yield differentials between German Bunds and the U.S. Treasuries expanded considerably, indicating the differing monetary policies between the euro area and the United States.

The dollar held on to the advances made last week after an encouraging U.S. employment report on Friday. The data boosted demand for higher-yielding assets such as the New Zealand and Australian dollars, reported Reuters.

The euro declined 0.15 percent to trade at $1.3620 after earlier surging to $1.3668. However, the level was much better than Thursday’s four month low of $1.3503, which was mainly due to the cuts in main rates by the European Central Bank. The move saw the deposit rate enter the negative territory for the first time ever at -0.10 percent, and also laid the path for injecting further liquidity into the euro zone economy in order to combat deflation.

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“The yield differentials are moving against the euro and for us the currency remains a sell on rallies,” said Peter Kinsella, currency strategist at Commerzbank.”The ECB is inching towards QE while the U.S. data is picking up and it’s only a matter of time before the short end of the U.S. bond market starts to price that in.”

The German Bunds did better than the UK and U.S. peers, pushing the gaps on the 10-year bonds to 2010and 2005 respectively.

The dollar index rose 0.1 percent up at 80.50, with the dollar slightly unchanged versus the yen at 102.45 yen. The dollar gained on Friday on data that indicated that U.S. nonfarm payrolls rose by 217,000 in May. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com