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Dollar finds support as attention turns to Yellen testimony

This already feels like the summer of the central banks for markets and there is no escape yet from policymakers.

Janet Yellen is preparing to appear before Congress, a speech later today from the deputy governor of the Bank of England could shed light on a finely balanced monetary policy committee, and there is a Bank of Canada rate call looming.

In the meantime, the US dollar is finding support and moving further up off the 10-month lows it touched in June, while investors stay shy of moving back into eurozone sovereign bonds, keeping their yields ticking higher. European stocks are rising modestly, with industrial and financial companies in demand.

Here’s the rundown:

The dollar index, a measure of the US currency against a basket of peers, is up 0.2 per cent on the session at 96.166.

The euro is down 0.1 per cent at $1.1391.

The New Zealand dollar is an eye-catching loser, down 0.6 per cent at $0.7240 per dollar after consumer spending data in the country for June came in below estimates. That was all the more disappointing since the numbers, gathered from electronic spending on bank cards, were expected to receive a boost from the rugby tournament between the All Blacks and the British Lions.

Frankfurt’s Xetra Dax is making the best gain among major European stock indices, up 0.4 per cent. London’s FTSE 100 is up 0.1 per cent and the region-wide Euro Stoxx 600 is up 0.2 per cent.

Tokyo’s Topix is up 0.7 per cent, with notable gains for consumer and telecoms stocks, while the yen is 0.3 per cent weaker at Y114.34 per dollar and the yield on 10-year Japanese Government Bonds (JGBs) is flat at 0.94 per cent.

Hong Kong’s Hang Seng index is up 1.5 per cent, led by financials.

Investors’ reluctance to buy back into European government debt is keeping yields higher, as expectations that the European Central Bank will look toward cutting its €60bn monthly stimulus spending continue to define sentiment.

Germany’s 10-year yield is up 2 basis points at 0.561 per cent, while France’s equivalent yield is up 3 basis points at 0.932 per cent.

Lena Komileva at G+ Economics says:

Markets are weighing the prospect of higher rates in the US, ahead of Janet Yellen’s testimony to Congress this week, against the tide of tightening monetary conditions globally.

Investors need to balance the improved attractiveness of government bond yields after the recent sell-off with anxiety over portfolio vulnerability to renewed selling during a global pivot toward reduced monetary liquidity.

The Bank of Japan, with their rate-capping unlimited bond buying intervention last week, is the only central bank swimming against the tide, in effect causing international investors to balance the benefit of a JGB portfolio duration protection with the cost of hedging a weaker yen.