(05 JULY 2018)DAILY MARKET BRIEF 1:EUR better bid as investors re-price ECB first rate hike

EUR better bid as investors re-price ECB first rate hike

The greenback lost ground on Thursday as investors started to question the narrative that trade tensions would be dollar positive. The dollar index slid 0.20% to 94.35 amid a broad rally of its G10 peers. The single currency rose 0.30% against the buck after German factory orders unexpectedly surged 2.6%m/m in May, widely beating forecast of 1.1%. Previous month’s reading was also upwardly revised to -1.6% from -2.5%. This is the first time this year that the gauge came in positive territory, suggesting that the weakness of the start of the year was only temporary.

In addition, there are some rumours that ECB members believe that a rate hike around the end of 2019 would be “too late”. This development provided a much-needed push to the euro. German yields rose across the curve with the 2-year yield increase 3bps to -0.63%, while the 10-year one added 3.3bps to 0.336%. Despite an improving risk sentiment across financial markets – equities are blinking green across the board – there is a good chance the euro’s gains will prove short-lived, as investors are getting nervous ahead of trade tariffs deadline. Indeed, both the US and China said the tariffs take effect on July 6.

By Arnaud Masset