Dollar Firm as U.S. Yields Resume Climb

November 12, 2021
  • U.S. yields are moving higher as the bond market reopens after holiday; President Biden is reportedly debating release of oil from the Strategic Petroleum Reserve; data today are limited; Mexico delivered a 25 bp hike to 5.0%, as most expected; Peru hiked rates by 50 bp to 2.0%, as expected
  • Geopolitical tensions are back on the radar; elsewhere, Brexit tensions remain high; eurozone reported better than expected September IP
  • Press reports suggest the upcoming stimulus package from Prime Minister Kishida will total more than JPY40 bln; China’s 6th plenum ended yesterday with Xi Jinping getting the expected special resolution to receive a 3rd term and ultimately rule China for life

The dollar continues to gain ahead of the weekend. DXY traded today at a new cycle high near 95.265, the highest since July 2020. There really aren't any major chart points until the June 2020 high near 97.802. Similarly, the euro traded today near $1.1435, the lowest since July 2020. Here, the next major chart point is the June 2020 low near $1.1170. Sterling traded today near $1.3355, the lowest since December 2020 and on track to test that month’s low near $1.3135. USD/JPY is struggling to get a foothold above 114 but should eventually play catch-up with euro and sterling weakness. if this pair can break above last month's high near 114.70, there really aren't any significant chart points until the December 2016 high near 118.65.


U.S. yields are moving higher as the bond market reopens after holiday. The 2-year yield is currently around 0.54%, up 3 bp on the day and well above the 0.39% posted last Friday. This clearly reflects heightened Fed lift-off expectations. The 2-year differentials with Germany (126 bp) and Japan (65 bp) are at new cycle highs, supporting further dollar gains ahead. Likewise, the 10-year yield is currently around 1.57%, up 2 bp on the day and well above the 1.41% posted earlier this week. We see continued upward pressure on U.S. yields and the dollar.

President Biden is reportedly debating release of oil from the Strategic Petroleum Reserve. With gasoline prices rising, with some aides in the White House pushing for the move meeting resistance from some Department of Energy officials. A task force studying the issue reported consists of White House Chief of Staff Klain, National Economic Council head Deese, National Security Advisor head Sullivan, Energy Secretary Granholm and her deputy Turk, and State Department energy expert Hochstein. Moves in the SPR are largely symbolic, but it’s clear that high inflation is becoming a larger and larger political risk for the Biden administration with less than a year before mid-term elections.

 Data today are limited. September JOLTS job openings (10.3 mln expected) and preliminary November University of Michigan consumer sentiment (72.5 expected) will be reported today. JOLTS data should show that supply remains the key issue for the labor market. For the Michigan reading, keep an eye on 1-yaer inflation expectations, which are seen rising a tick to 4.9%. Williams is the only Fed speaker today.

Mexico delivered a 25 bp hike to 5.0%, as most expected. However, a significant number of analysts were calling for a larger move and so there was some palpable disappointment. The result was lower yields across the curve and a weaker peso. Once again one MPC member (Esquivel) voted for no hike, and the statement didn’t suggest a risk of frontloading the cycle despite still high inflation figures. Indeed, Banxico raised its inflation forecast to a peak of 6.8% in Q4, up from 6.2% previously. We expect a few more hikes from the bank, albeit gradually, to make sure they don’t fall behind the curve. Swaps market is pricing in 275 bp of further tightening over the next 12 months, which seems too aggressive.

Peru’s central bank hiked rates by 50 bp to 2.0%, as expected. This is the fourth consecutive hike, but officials insist that accommodation is still needed. Still, more tightening is likely given the strong dollar cycle and upside inflation risks. However, the cycle may be choppy with some data-dependent pauses along the way. The bank forecasts CPI to return to the 1-3^ target range in the second half of next year. The sol was little changed yesterday.


Geopolitical tensions are back on the radar. Belarus’s President Lukashenko threatened to shut down the Russian gas pipeline to the EU because of the renewed migrant crisis. Migrants are amassing on the border between Belarus and Poland which, in the EU’s view, has been fostered by Lukashenko as retaliation in the political pressure game. Bloomberg estimates that about 20% of gas from Russia flowed through Belarus this year. On a separate note, there has been growing speculation and accusations of possible escalation of Russian involvement in Ukraine, with reports that the U.S. has warned the EU that Russia may be planning another invasion with a recent troop buildup at the border.

Elsewhere, Brexit tensions remain high. The two sides mee today in London as negotiations continue. Latest reports suggest the EU is ready to improve its offer to cut customs checks in Northern Ireland but that is reaching the end of its rope. EC Vice President Sefcovic will reportedly warn the U.K. today that a deal will not be possible unless the UK drops its “unattainable” demands to end the oversight role of the European Court of Justice. Chief U.K Brexit negotiator Frost has called for a complete overhaul of the deal and has threatened unilateral changes if the EU does not make enough concessions. Something has got to give but as we’ve pointed out before, one can always count on the U.K. to overplay a weak hand.

Eurozone reported better than expected September IP. It was expected at -0.5% m/m but instead fell only -0.2% vs. a revised -1.7% (was -1.6%) in August. Last week, German and French IP readings came in much weaker than expected and suggested some downside risks to the headline eurozone number. That said, the reading is nothing to cheer about. Virus numbers are rising in Europe as we head into winter, with Germany being particularly hard hit and posting record daily infections of more than 50k. Looking ahead, it’s clear to us that the U.S. economy will outperform the eurozone in Q4 and most likely Q1 as well.


Press reports suggest the upcoming stimulus package from Prime Minister Kishida will total more than JPY40 bln. Official announcement is expected next week, and earlier leaks suggest the plan will include JPY100,000 payments for those 18 and younger. Of note, the real spending will be lower as the headline number includes some loans. Other reports suggest the cost of the package will be covered by both an extra budget for FY21 but also as part of the regular budget for FY22. The economy likely shrunk in Q3 and while it reopened in Q4 as virus numbers dropped, policymakers are taking no chances.

 China’s 6th plenum ended yesterday with Xi Jinping getting the expected special resolution to receive a 3rd term and ultimately rule China for life. This should, in theory, imply a longer-term incentive structure for the ruling class to resolve the country’s fundamental financial and economic risks – but again, there is no new incremental news here. Economic and social stability remain the key directives, so balancing short- and long-term risks will always be challenging, as seen by the reaction to the Evergrande story.

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2021. All rights reserved.

As of June 15, 2022 Internet Explorer 11 is not supported by

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction