US dollar rises in tandem with US Treasury yields

The US dollar strengthened on Tuesday, with the currency being underpinned by the reopening of the US market and an uptick in US Treasury yields.

The pound, meanwhile, is stuck in a narrow range so far this morning, with GBP/EUR flat at €1.1629 and GBP/USD muted at $1.3767. GBP/CAD is buoyed at CA$1.7451, while GBP/AUD and GBP/NZD hold steady at AU$1.8691 and NZ$1.9418 respectively.

Looking ahead, will another strong job openings reading in the US help to extend the US dollar’s bounce today?

What’s been happening?

The US dollar firmed through yesterday’s trading session, with the currency finding renewed demand amidst the reopening of US markets following the extended Labour Day weekend.

This upswing in the ‘greenback’ was reinforced by a rise in US Treasury yields, which climbed 10 basis points above where they were before last week’s abysmal payroll reading.

Meanwhile, the euro, struggled to hold its ground on Tuesday, after Germany’s latest ZEW survey revealed economic sentiment in the Eurozone’s largest economy fell to a new post-pandemic low this month.

This limited any gains from the publication of a stronger-than-expected industrial production reading from Germany earlier in the session.

At the same time, the pound retreated yesterday, as GBP investors were unnerved by Boris Johnson’s proposed £12bn-a-year tax increase, which overshadowed some hawkish remarks from Bank of England (BoE) policymaker Michael Sauders.

What’s coming up?

The only economic release of note today will be the publication of the latest US Job Openings and Labor Turnover Survey (JOLTS).

The US previously reported job openings climbed to a record high of 10.1 million in June, highlighting the massive demand for labour as the US economy rebounds.

Economists are predicting a similarly robust reading in July, which could help propel the US dollar higher this afternoon.

In the absence of any notable UK data, any upside potential in the pound looks limited today, particularly amidst ongoing Brexit and economic uncertainty.

Finally, we expect the euro to trade in a narrow range through today’s session, as EUR investors are likely to be reluctant to make any aggressive bets ahead of the European Central Bank’s (ECB) interest rate decision on Thursday.