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USD Price Gains Likely to be Short-Lived

USD Price Gains Likely to be Short-Lived

2018-12-05 10:20:00
Martin Essex, MSTA, Analyst

USD price, news and analysis:

  • The USD price is bouncing modestly but any further gains will be hard to achieve as analysts worry about early signs of a US economic downturn.
  • The US Treasury yield curve continues to flatten and concerns remain about the US-China trade war.

USD price on shaky ground

A modest rally in the US Dollar is unlikely to extend much further as traders worry about the US-China trade war and a continued flattening of the US Treasury yield curve. In Europe Wednesday, USD was higher against the Japanese Yen, the Australian Dollar and the Canadian Dollar, as well as the Euro.

EURUSD Price Chart, Daily Timeframe (August 27 – December 5, 2018)

Latest EURUSD price chart.

Chart by IG (You can click on it for a larger image)

Behind the latest bounce is a continued flattening of the US yield curve, with the yield on the 10-year Treasury note at 2.915%, its lowest since early September and only just above the two-year yield at 2.799%. Between two years and five years the curve has already inverted, with the two-year yield now just above the five-year yield at 2.791%.

US Treasury yield curve

Latest US Treasury yield curve.

Source: Investing.com

An inverted yield curve is seen by some economists as a warning of an economic downturn or even a recession. If that proves to be the case, the US Federal Reserve will likely end its rate-hiking cycle earlier than previously expected – which would be negative for USD.

Meanwhile, worries about whether the ceasefire in the US-China trade war will hold are continuing to damage market risk sentiment, leading to demand for safe havens such as the Japanese Yen and the Swiss Franc. China has now said it is confident a trade deal can be reached but the truce remains fragile.

More to read:

A Brief History of Trade Wars | Infographic

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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