USD Forex Market Weakens as Yields Retreat

• US Optimism Continues on Allayed Inflation Fears
• Mixed Chinese Data Fails to Dampen Mood
• Market Set to Add Fresh Gains

The forex market in both Europe and the UK got off to a strong start this week as the USD weakened with treasury yields dipping slightly from their latest highs of last week. This comes on the back of the newly implemented stimulus package providing broad economic support. Even mixed data from China on an uneven recovery there could not shake the optimism surrounding the market as Wall Street looks set to add more gains following a very strong previous week.

Inflation Concerns Soothed For Now

Much of the market’s unpredictable nature of late has been driven by a strong focus on the core issue of inflation. This has been reflected in forex trading and equities through the lens of the US 10-year treasury yield in particular. A rising yield at the end of last week triggered a sell-off and move toward the safe-haven Dollar. Today though the yield has dipped from its 12-month high and Treasury Secretary Yellen has moved to further dampen speculation that inflation is a point of worry for the economy.

Her comments that there did not seem to be a “significant risk” of inflation, and that even if this were to materialize that the government has the “correct tools to deal with it” would seem to have provided some comfort to the market and eased concerns that the further economic stimulus could have an overheating impact. She also noted that she believed the package to be “the right amount”.

Roaring Industrials but Uneven Chinese Recovery

A slew of economic data reported by China today has had an impact on the Australian Dollar in particular with forex brokers noting the currency has fallen against the USD given the strong influence of China on the pair. This comes a Beijing reports hugely impressive industrial output data with huge output gains beating expectations.

Still though, the figures point to an imbalance in the recovery with the services sector and consumer data still lagging on previous years. The unemployment rate has also crept higher to 5.5% for February. The data has been interpreted with caution in the market, many Chinese and Asian shares selling off slightly today and the broader indication being that more government intervention may be needed to boost the services sector.

US Markets Continue to Look Positive

Wall Street has shrugged off a weak start to the day in Asian markets seeming to favor a continuation of the gains that had been record-breaking in the last week. Buoyed by the dipping treasury yield though it still remains above 1.6%, early trading in the major indices appears positive.

With much effort made to reduce concerns surrounding inflation, it remains to be seen if this can continue to have a positive impact through the week in the markets. With the new $1.9 trillion stimulus ready to go though, it seems there will be several beneficiaries in both the Dow Jones and S&P 500 that look to add to their strong ending last week.