The euro could extend gains against a weak dollar in the near term, Mohamad Al-Saraf, associate for FX and rates strategy at Danske Bank Research, says in a note, as the dollar drops to one-month lows due to falling Treasury yields. “We continue to prefer the topside in EUR/USD in the near-term, as we anticipate U.S. economic data starting to disappoint,” Al-Saraf says. In this regard, it is worth keeping an eye on potential weakness in the U.S. service sector, he says. Preliminary purchasing managers data are due from Europe and the U.S. on Tuesday and will provide direction for both currencies. EUR/USD rises to a one-month high of 1.0690, while the DXY dollar index hits a low of 105.3720.
Eurozone government bond yields fall, tracking lower U.S. Treasury yields, as the market awaits purchasing managers’ indices, Christoph Rieger, head of rates and credit research at Commerzbank Research, says in a note. 10-year U.S. Treasury yields turned lower after they hit briefly 5% on Monday. “Today’s recessionary PMIs are probably not sufficient to turn things around lastingly,” he says, suggesting buying Bunds at dips. “If higher yields lead to higher yields, we have a problem, especially if this pattern, which we saw in the sovereign debt crisis, applies to Bunds and Treasuries,” he says. The 10-year Bund yield is trading 4.5 basis points lower at 2.834%.