The euro is gaining ground against the US dollar during early Friday trading, following a sharp decline in Treasury yields. Despite the impressive US economic data that showed both retail sales and unemployment figures exceeding expectations, the greenback remained subdued, with the markets giving a clear sign that they are taking the Fed’s word at face value. The Fed has been hammering-out a dovish message that for a while wasn’t taken seriously by many investors, who believed that inflationary pressures would force the central bank to anticipate the tapering of its current accommodative policies. However, that is no longer the case, as illustrated by the recent closing out of large short positions on Treasuries. This scenario is weighing down on the dollar, while also providing support to the euro due to the narrowing of the yield differential between the two currencies and the positive growth outlook for the global economy that is also positive for the single currency.
Ricardo Evangelista – Senior Analyst, ActivTrades