Forex today: US yields new highs, dollar firm again, but are the US politics as stable?

Forex today carried over the Trump trade with optimism still building around tax reform while investors jumped back into stocks, driving the dollar higher by 0.2% in the DXY. However, there are some concerns that there may ot be enough support from the Republicans, so one to keep an eye on this week. 

The US 10yr treasury yields broke through the psychological 2.4% level from 2.37% lows to 2.42%, a fresh six month high. 2yr yields were also higher up 0.4%, travelling from 1.56% to 1.59% to make for a nine-year high. Markets are factoring in the Fed fund futures yields that offer a chance of a December rate hike at 99%. 

The other driver is Fed's Taylor who was drawn by the Republican Senate in a show of hands for the next Fed Chair. Taylor believes the administration can substantially lift non-inflationary economic growth through deregulation and tax changes, making for an easier and less expensive business climate in the US. Yellen’s current four-year term ends on February 3rd. what is key though, is that Taylor’s monetary policy rule calls for interest rates significantly higher and that is bullish for the US dollar. 

As for currencies, the EUR outperformed, rising from 1.1750 to 1.1793 despite the ECB coming up this week and a stronger dollar on the session. This was, however, a short-lived rally that was sold into leaving the single currency flat on the session. GBP has closed NY at 1.3114 as investors build their concerns that the UK economy is not strong enough for a rate hike; subsequently, the 55-DMA support at 1.3153 was broken, and that is significant with eyes now back to 1.3080 recent lows. The EUR/GBP cross was higher to 0.8975. 

USD/JPY tested back to the 114 handle from 113.40 with the Dow making fresh record highs. The Antipodeans have been pressured again, with the Aussie losing the 0.78 handle to score a low of 0.7771 and the Kiwi was still under pressure due to the new government’s policies, dropping to a five-month low to 0.6886. 

Key events ahead in Asia:

Analysts at Westpac noted that we have the Australian Q3 CPI data that is expected to rise 0.8% (core +0.5%). "Westpac sees a softer 0.7% for the headline and 0.3% for the core with broader pressures absent. Westpac’s headline forecast ex-energy (household electricity and gas) is 0.27%."

Key notes from US session:

• Wall Street closes at record highs on strong earnings reports
• Taylor wins the Senate GOP straw poll - Sen. Scott
• Talk of US tax bill not receiving enough Rep support - CNBC
• BoE Deputy Governor: UK economy clearly slowed - UOB
• Gold intermarket: gold sticks to the script, (risk-on, gold down)