Dollar, Treasury yields jump after strong GDP

Dollar, Treasury yields jump after strong GDP

25 September 2015, 16:28
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On Friday the greenback was broadly higher and Treasury yields jumped after the Commerce Department said that the U.S. economy grew in the second quarter at a faster pace than what had been initially reported and as Federal Reserve Chair Janet Yellen signaled the possibility of a U.S. rate hike this year.

The U.S. economy grew almost 4% in the second quarter, supported by higher consumer spending and a stronger business investment than previously reported, revised figures signal.

Gross domestic product — the value of everything a nation produces — climbed at a 3.9% annual rate from April to June, according to the government’s second update of how fast the nation’s economy expanded during the spring.

Previously the Commerce Department had said GDP increased 3.7%. The numbers are revised once the government gets more data on how the economy performed.

The recovery in the second quarter after dismal 0.6% growth in the first three months of the year was driven largely by an increase in spending by consumers, who account for as much as 70% of U.S. economic activity.

Consumer purchases jumped 3.6%, up from a prior estimate of 3.1%. Americans spent more on services such as health care and transportation.

The upwardly revised gross domestic product data came after Federal Reserve chief Janet Yellen said Thursday evening that an interest-rate hike is likely in 2015, citing a strengthening economy.

The news boosted investor confidence, sparking a stock-market rally and a bond-market selloff. Typically, when investors buy into riskier assets, like stocks, they sell safer investments like U.S. government bonds.

The Treasury selloff pushed prices lower and drove yields, which move in the opposite direction, higher.

The yield on the 10-year benchmark Treasury note  rose 6.2 basis points to 2.182% and the 30-year bond yield gained 5.9 basis points to 2.964%, according to Tradeweb. One basis point is equal to one hundredth of a percentage point.

The yield on the two-year Treasury note  increased by 4.3 basis points to 0.723%. 

In Europe, the yield on the benchmark 10-year German bond  known as the bund, added 6.2 basis points to 0.650%, after falling Thursday to its lowest level in a month.

Elsewhere in the currency market, the dollar was given a significant boost.

The greenback re-approached Thursday's six-year peak against its Canadian counterpart with USD/CAD hitting 1.3356 during early U.S. trade, the session high; the pair subsequently consolidated at 1.3312, edging up 0.05%.

EUR/USD dipped 1.1184, lower 0.42%.

Sterling lost 0.32% versus the greenback with GBP/USD trading at 1.5192.

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