Expert Analysis of Today's Market

• The dollar strengthened against most major currencies on Thursday as US 10-year yields rose above the important 5% level for the first time since August. The yield advantage against the euro also rose to more than 50 basis points, the highest in more than two months. The yen fell after a report said North Korea test-fired short-range missiles; however, the yen later recovered as US equity markets declined. The Australian dollar hit a fresh 18-year high after strong job data while the New Zealand dollar hit a 22-year high versus the greenback after New Zealand’s central bank unexpectedly raised interest rates to a record 8.00%. Sterling fell after the Bank of England as expected left its target rate unchanged at 5.50%.


• The EUR/USD fell for a second day after hitting minor resistance at the 1.35-area. We expect a test of the 1.33-1.34 support. If this is broken, it will be bearish for the pair.

Financial and Economic News and Comments

US & Canada

• US wholesale inventories increased 0.3% in April, the US Census Bureau said. Sales rose a strong 1.3% m/m in April following a 2.1% m/m gain in March. The inventory to sales ratio has fallen to a 1.12-month in April from a 1.16-month in the beginning of the year.


• US initial jobless claims fell by 1,000 to 309,000 in the week ended June 2, the Labor Department said. The 4- week claims average rose to 307,250. The report indicates the US labor market remains strong.

Europe

• The Bank of England left its benchmark interest rate unchanged at a 6-year high of 5.50%, following four previous interest-rate increases to slow inflation. Inflation has exceeded the BOE’s 2.0% target for a year, and the BOE’s forecasts showed higher interest rates are needed to rein in prices.


• The UK house market is showing some signs of slowing in response to higher UK interest rates. UK house prices fell 0.3% m/m in May and 10.6% y/y, according to the latest Halifax survey.

Asia-Pacific

• South Korea’s Yonhap news agency said North Korea test-fired several short-range missiles off its west coast.


• Japan’s machine tool orders rose 5.3% y/y in May following a 7.2% y/y rise in April.


• Japan’s Vice Finance Minister Hiroshi Watanabe said current market moves reflect fundamentals. He did not see risks to unwinding of carry trades.


• The Reserve Bank of New Zealand unexpectedly raised its benchmark interest rate a quarter point to a record 8.00%, saying housing demand and consumer spending are fanning inflation.


• Australian employment rose 39,400 in May after gaining 34,900 in April. The jobless rate dropped to 4.2%, the lowest in almost 33 years, the Bureau of Statistics said.

FX Strategy Update