•The US dollar remains under pressure
•US yields are at multi-year highs
•Focus on Senate to avert US government shutdown
•Sterling remains the strongest major currency this week despite disappointing retail sales today
•Ahead of Fitch’s review, Spain’s 10-year premium over Germany is the smallest since 2010
•MSCI Emerging Market Index posts new highs since 2008 and extends its advance for a sixth week
The US dollar remains on the defensive, and is lower against nearly all the major and emerging market currencies. The fear of the lack of agreement could force a closure of the US government may be providing the latest fodder for what is a trend move. Asian and European stocks have shrugged off the weakness seen on Wall Street yesterday. Emerging market equities are mostly higher as well. US yields are dragging core yields higher, while European peripheral yields are lower. Oil prices are lower and WTI is off 1% this week , which if sustained, would be the largest loss since early December. Among emerging market currencies, Asia is outperforming.
The US dollar is broadly lower as the momentum feeds on itself.
Asia is leading the way. The Japanese yen, Taiwanese dollar, Malaysian Ringgit, and South Korean won are all around 0.45% higher. Asian shares also managed to shrug off the weakness seen in the US yesterday. The MSCI Asia Pacific Index advanced 0.7%. It is the sixth consecutive weekly gain.
The dollar’s drop comes as US yields reach levels now seen in year. The 10-year yield is at its highest level seen 2014, while yields from bills to three-year paper are at their highest level since 2008.
The risk of a US government shutdown beginning tomorrow may be providing the latest fuel for the dollar’s sell-off. The Dollar Index is set to post its fifth consecutive weekly loss, the longest drop since April-May 2015. The House of Representatives voted to extend the spending authorization for a month (Feb 16), but the Senate is balking. The Democrats in the Senate, whose votes are needed, unlike tax cuts, Many Democrats in the Senate want a deal on the adults that were brought by their families illegally as children.