NEW YORK (BBH) -- The U.S. dollar was mixed Thursday vs. the majors, consolidating a bit after Wednesday's losses. The euro maintained a supportive tone following the successful Spanish auction and moderation in peripheral credit risk. We think this is only temporary as the underlying debt dynamics for the periphery remain unsustainable.
Note that the U.S.-German two-year spread continues to move in the euro's favor (18 basis points in the past week) so euro upside may still be tested near term with 1.3220 the next target up ahead. Sterling lost early momentum after some light profit-taking following mixed economic data. The Bank of England left policy unchanged, as expected.
The yen is trading flat on the day, despite the third consecutive monthly fall in Japanese core machine orders. CHF is the worst G-10 performer on the day after the Swiss National Bank expressed concerns about currency strength. Elsewhere, the New Zealand dollar is the strongest performer in the G-10 against the dollar, following a record high print of New Zealand's commodity price index, while Sweden's CPI exceeded forecasts, increasing the likelihood of further tightening this year. Emerging-market currencies were mixed, with KRW and MYR the best performers on the day and PLN and CZK the worst.
Spanish and Italian bond auctions went well, with decent demand, and helped peripheral spreads decline for a second consecutive day. Greece and Belgium's 10-year yield were both down 10 basis points while Ireland's yields dropped 3 basis points. Elsewhere in Europe, bunds and gilts advanced, with the 10-year yields down 1 basis point and 3 basis points, respectively, rebounding from Wednesday's dip as equities stalled.
Meanwhile, Japan sold 548 billion yen of 30-year bonds at an average yield of 2.156%, while U.S. two-year yield was flat and the 10-year down 1 basis point. Elsewhere, the Bank of Korea unexpectedly raised its benchmark rate 25 basis points to 2.75% from 2.50%, with Chile seen hiking 25 basis points Thursday.
