Euro advances on rise in bund yields; strong dollar raises concerns

Euro advances on rise on bund yields; strong dollar raises U.S. officials’ concerns

The euro advanced against the U.S. dollar after the rise in bund yields on better than forecast German industrial output data.

Following its drop the previous two sessions on the back of the progress in U.S. data, especially the non-farm payrolls, the EURUSD on Monday rose to trade around 1.1124.

A report released today showed that German industrial production edged up 0.9 percent in April, surpassing median consensus of 0.6 percent advance.

Following the release of the upbeat German report, the 10-year bund yields climbed to 0.87 percent to give some support to the single currency.

The euro managed to end last week on a gain, buoyed by the rise in bund yields to a record high of 0.99 percent, the highest since at least 1999, after the ECB hinted it would not add more stimulus because of rising European debt yields.

Improvement in economic data, along with the rise in bond yields could be key factors helping the euro in the coming period.

Data released last week signaled a rise in euro area annual CPI for May to 0.3 percent, while the ECB raised its inflation forecast for this year to 0.3 percent from 0.0 percent predicted in March.

However, the Greek dilemma remains one of the key issues that could put the euro under pressure, as so far the Greek government has not reached a deal with its creditors.

Talks between Greece and its creditors will resume in Brussels on Monday, where G7 leaders urged Greek Prime Minister Alexis Tsipras to end the four-month impasse.

Last week, Greece delayed a debt payment of 330 million euros due on June 5 and promised to pay a total of 1.7 billion euros by the end of June.

Hence, the euro may remain under pressure until the end of the month due to uncertainty about Greece to repay debt, especially as the bailout package backed by the euro area expires at the end of June.

As for the dollar, it should be strength further against majors after the upbeat non-farm payrolls figures that raised expectations the Fed would raise its interest rates this year.

But a media report cited concerns from U.S. officials regarding the strength of the dollar, pushing the green currency lower on Monday.

The dollar already is “moderately overvalued” and further advance of would be harmful to the U.S. economy, the IMF said last week.

A strong dollar could complicate the Fed’s intention to raise interest rates this year, as it weighs on company earnings and exports while pushes inflation lower.

Later in the week, eyes will focus on U.S. producer prices for May, noting that April’s reading resumed its downside trend to signal a 0.4 percent drop.

Ahmed Mamdouh

Ahmed Mamdouh, Co-Founder and Head of English Fundamental Analysis at, with 7 years of experience in the financial markets. Mamdouh holds a Master’s Degree in Economics from The American University in Cairo and a Bachelor Degree in Economics from The Faculty of Economics and Political Science, Cairo University.

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