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Bunds lower, EUR/USD rangebound – Societe Generale

FXStreet (Edinburgh) - Kit Juckes, FX Strategist at Societe Generale assessed the recent performance by the German Bunds.

Key Quotes

“10-year Bund yields dropped through 1% for the first time yesterday after poor German GDP data and the euro went up. It didn't go up very far, but it's still a reminder that bond yields aren't really the big drivers of currencies”.

“Sub-1% Bund yields are supposed to send a message to policy-makers which in turn should result in a policy response that delivers inter alia, a weaker currency”.

“But unless the policy response is more than tinkering by the ECB and inaction by governments, I doubt it will be very effective. Growth will disappoint, rates will stay lower for longer, and a weaker euro will depend primarily on the dollar rallying”.

“We get Empire State manufacturing, PPI and industrial production today. A 0.5% increase in IP should be cheerful, but core PPI inflation likely dropped further and I fear that will be the main focus. Inflation isn't just anchored, it's been pummelled into submission”.

“The only other data due is UK 2Q GDP, expected at 0.8%. EUR/USD is in its 1.3330-1.3430 range, USD/JPY in its 101-103 range and GBP/USD just holding above 1.6660. The risk bounce is cheered by news that US high yield bond investors have started buying again after four weeks of outflows”.

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