Dollar buying prevailed in markets at the start of the week, with EUR/USD led lower. Market attention is focused on trends in French long-term bonds.
Dollar buying prevailed in markets at the start of the week, with EUR/USD falling to around 1.1160 and setting a new year-to-date low. The rise in French long-term bond yields and the widening France-Germany bond-yield spread have become pronounced. The expansion of France's fiscal deficit and political instability have been cited as contributing factors. Developments in demonstrations over inadequate educational infrastructure have also drawn attention.
USD/JPY fluctuated without a clear direction in a range from below 157.50 to the 158.10s, while yen crosses were generally pushed lower in the direction of a stronger yen. Equity markets are firm against a backdrop of weak US employment data for the previous week, but bonds are expected to remain the main focus.
Across the market, the tendency for stocks to rise is pronounced, but it has been suggested that risk appetite could be restrained during periods of broad-based dollar strength. Going forward, euro weakness in European markets is expected to intersect with upward pressure on the dollar and yen, and attention is said to be warranted on developments in the dollar index.
Scheduled economic releases include final September non-manufacturing PMI readings for France, Germany, the euro area, the UK and the US, euro-area PPI for August, and the US ISM non-manufacturing index for September. These releases and comments from policymakers are expected to drive short-term market volatility.