USD demand propped up by rising US real yields

Market reports
Thanim Islam
  • USD buying continuing
  • US retail sales to add to further gains?
  • UK wages spur GBP on


Volatile day on USD pairs yesterday with the USD marking new one-month highs on the USD index before we saw the gains retrace swiftly in the afternoon. The USD continues to be supported by risk aversion as well as markets believing interest rates will stay higher for longer even with inflation lower.  GBPUSD hit support levels last seen on the 3rd of August before bouncing back higher.

UK wages accelerated at their fastest on record, causing markets to fully price in a 0.25% rate hike in September as well as pricing in peak interest rates in the UK from 5.75% to 6%. Average earnings including bonuses rose to 8.2% in July from 6.9% in June. GBP has continued its move higher as a result, but there is some caution in the job numbers. Unemployment rose to 4.2%, the highest since 2021, and the number of people in work fell by 66,000 – the biggest decline since August.


Market rates

* Daily move - against G10 rates at 7:30am, 15.08.23

** Indicative rates - interbank rates at 7:30am, 15.08.23

Data points


  • None today.

Our thoughts

US retail sales will be the key data point for the rest of the day as we attempt to gauge how the US economy performed in July. An uptick is expected with Amazon Prime Day and higher gasoline prices and should add to the US outperformance narrative as well as support higher US yields. The data should add further support for USD.

German and European ZEW survey numbers have been falling since March and a further fall is expected today which could add pressure on EUR.

GBP is higher today following the wage numbers but gains so far have been capped. Markets will likely be cautious going into tomorrow's inflation numbers where both core and headline inflation is expected to drop to 6.8%.

Chart of the day

Markets are continuing to bet that interest rates will remain higher than inflation into the future driving the 10-year real yields (inflation protected) to 14-year highs. The positive rate of return alongside data suggesting the US will outperform its counterparts is adding to the demand for USD. Data from the options markets is also suggesting that markets are the most positive on the USD since March.

Source: Bloomberg Finance L.P.

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