US Yield Curve Goes Belly Up, Sparking USD Strength

Christopher Vecchio, Currency Analyst at DailyFX, comments:

 

“The EURUSD and USDJPY are breaking out of short-term congestion patterns supportive of further US Dollar strength. It all started yesterday after the Federal Reserve indicated that it not only intended to continue tapering QE3 by $10B month (now down to $55B/month in total), but that there would only be a limited cushion between the end of QE3 and the first interest rate hike.

 

“While QE3 looks to be on pace to be fully tapered by the 4Q’14 – culminating in a larger $15B cut in October or $10B in October and $5B in December – Fed Chair Yellen’s commentary that there would be approximately six months between the end of QE3 and the first Fed rate hike has spooked markets.

 

“The US Dollar, which was one of the worst performers of the year up until yesterday, has seen a major relief rally as the US yield curve has gone “belly up,” and now further gains versus the Euro (EURUSD price lower) and the Japanese Yen (USDJPY price higher) could gather.”

 

 

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