The British Pound And Euro Surge Despite Higher U.S. Rates

(This is an excerpt from an article I originally published on Seeking Alpha on December 30, 2013. Click here to read the entire piece.)

On Friday, the U.S. 10-year Treasury bond yield hit 3.0%, matching a high for the year. Rate are rising again across the yield curve.


U.S. Treasury yields are on the rise and back to highs of the year
U.S. Treasury yields are on the rise and back to highs of the year

Source: St. Louis Federal Reserve

This steady march in rates should support a stronger U.S. dollar index (UUP). Yet, as the chart below shows, the U.S. dollar continues to hover just above its lows for the year. (Over the last three weeks, the U.S. dollar has managed to bounce off its QE3 reference price – the dollar’s level when the Federal Reserve announced QE3 last year).


The "QE3" reference price holds as support yet again
The “QE3” reference price holds as support yet again

Source for charts: FreeStockCharts.com

The British pound is one of the currencies in the index holding its own and then some against the U.S. dollar. I have spent many posts discussing my bullishness on the pound in reference to improving economic conditions. {snip}


The British pound just barely holds onto its breakout
The British pound just barely holds onto its breakout

The British pound maintains its longer-term breakout
The British pound maintains its longer-term breakout

The euro (FXE) is the majority component of the U.S. dollar index. The economy and yield stories do not work so well for me when trying to digest the euro’s contribution to the dollar’s inability to lift-off toward the top of its multi-year trading range. {snip} I continue to think the euro is rising just as a general anti-dollar bet. That trade seemed to reach a pinnacle on Friday when the euro inexplicably surged against all major currencies. This move is seen most clearly in Friday’s action for the euro against the U.S. dollar.

{snip}


The euro surges and completely fades...
The euro surges and completely fades…

...it all happened in the blink of an eye....
…it all happened in the blink of an eye….

I continue to think short euro will be a strong trade to start 2014. The eurozone has a very unpleasant combination of rising unemployment AND high interest rates (in the periphery). {snip}


The trend for unemployment in the eurozone is still UP
The trend for unemployment in the eurozone is still UP

Source: St Louis Federal Reserve (updated through September, 2013)

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on December 30, 2013. Click here to read the entire piece.)

Full disclosure: short euro

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.