Dollar hits two-week high after U.S.-Japan meeting
The dollar hit a two-week high against the yen on Monday as investors focused again on the U.S. reflation trade which dominated the aftermath of Donald Trump’s election in November but has stalled this year. All eyes are fixed on testimony by Federal Reserve chief Janet Yellen this week after signs that other policymakers at the U.S. central bank are leaning towards more hikes in interest rates this year than the two currently priced in by markets. That would help the dollar and reports that Trump did not even discuss the currency or its strength at weekend talks with Japanese premier Shinzo Abe did likewise.
Political uncertainty tempers recovery in Italian bonds
A well-received bond sale helped steady Italian yields after early rises on Monday, but the recovery was limited by uncertainty as former prime minister Matteo Renzi looked set to trigger a leadership contest in the governing Democratic Party. A rally in equity markets also helped lift sentiment toward the euro zone’s lower-rated or riskier bond markets, denting demand for benchmark German bonds. Italy sold 8.5 billion euros worth of government bonds, at the top-end of the planned issue range.
China’s yuan weakens, money rates fall as central bank resumes open market ops
China’s yuan weakened against the dollar on Monday as hopes of major U.S. tax reforms continued to boost the greenback. The People’s Bank of China set the official yuan midpoint rate at 6.8898 per dollar prior to the market open, the weakest level in nearly four weeks and 79 pips softer than the previous fix at 6.8819. The dollar rebounded late last week after U.S. President Donald Trump’s promise on Thursday of a "phenomenal" tax reform plan over the next two or three weeks continued to support the dollar against most of its major rivals.