Dollar Rises With Yields, Euro Slips on Spain Woes: Markets Wrap

The dollar rose with Treasury yields as investors contemplated the prospects for U.S. tax cuts as well as the chances of a new — and potentially less dovish — Federal Reserve chief. The euro retreated in the wake of a contentious vote for independence in the Spanish region of Catalonia.

European equities opened higher after a mixed session for holiday-hit Asian markets. Spanish stocks slumped and the common currency was one of the worst performers among major peers after a violence-marred vote in Catalonia spurred the regional government to press toward a unilateral declaration of independence. The tensions also had a clear impact in the bond market, with Spanish premiums climbing over comparable German debt. Gold fell and West Texas oil halted gains above $51 a barrel after Baker Hughes data showed the U.S. rig count climbing to 750 last week. The pound dropped against the dollar for the sixth time in seven days amid concerns about the stability of U.K. Prime Minister Theresa May’s government.

The tension in Spain “is not a game-changer for the euro, but it is likely to weigh — shifting the narrative away from the political optimism that followed Macron’s victory,” wrote RBC Capital Markets strategists led by Sue Trinh in Hong Kong, referring to President Emmanuel Macron’s victory in the French election earlier this year.

After a two-day pause the dollar is adding to gains from last week, when it benefited from speculation President Donald Trump could opt for a Fed boss who might pursue more aggressive policy tightening, not to mention details of the administration’s tax plans.