Will Euro Central Bank hike rates earlier?By Arnaud Masset
Rumour has it that the European Central Bank might raise interest rates earlier than the current target of late 2019. Adding more fuel to that fire was the rise in German factory orders for May, which unexpectedly surged 2.6% from April, widely beating the forecast 1.1%. April’s reading was also upwardly revised to -1.6% from -2.5%. May is the first 2018 month in positive territory, suggesting that early-year weakness was temporary. All this pushed the euro, which rose 0.30% against the USD. German yields rose across the curve with the 2-year increasing 3 basis points to -0.63% and the 10-year adding 3.3 bps to 0.336%. The dollar index slid 0.20% to 94.35 amid a broad rally of its G10 peers.
Despite improving risk sentiment – equities are blinking green across the board – the euro’s gains might prove short-lived. Investors are nervous ahead of the US-China trade tariffs deadline: tomorrow, 6 July.
Watch the Fed’s minutesBy Peter Rosenstreich
At 14.00 Washington DC time today, the US Federal Reserve will publish the minutes of its June meeting on monetary policy. This will drive the USD and US yield curves. Economic growth continues to accelerate, despite expectations of a cyclical slowdown. This increases the probability of additional rate hikes – perhaps a fourth one late this year. Also interesting will be the Fed's view on trade and inflation.
Impact on G10 currencies should be limited, since the Fed’s tightening cycle is already priced in. Still, emerging market, interest rate sensitive currencies should come under pressure. Currencies with significant USD liabilities such as TRY and INR are extremely exposed.