Interest rate differentials continue to narrow between US and Eurozone bonds in the wake of tamer PCE deflator data. Three-month rate futures trade with a dwindling 139 bp advantage for the USD, while two-year differentials narrow to 87 bp. 10-year spreads are at 75 bp, their lowest since spring 2005.
All else being equal, the EUR should garner support on tightening spreads. EUR/USD edged up above 1.3200 in the wake of the data but ran into options-related selling, dealers report. Prices are easing to 1.3190 as we write. 1.3175 and 1.3150 are support on dips.
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