Hopes of fiscal stimulus drive US Treasury yields higher

Expectations of substantial fiscal stimulus in the form of tax cuts and more infrastructure spending have risen after Donald Trump’s election victory. Hopes of fiscal stimulus have caused benchmark 10-year yields to rise by around 80bps since the election. 30-year yields increased above 3% for the first time since January.

It remains to be seen if President-elect and the Republicans in Congress will agree on the terms. The size and timing of any potential fiscal boost to the economy are yet to be determined. Moreover, any positive impact to economic growth from fiscal measures could be offset by the new administration’s potential stance on trade and immigration.

US economic growth has picked up after a weak first half. The latest economic data paint a more positive picture of the economy for the second half of the year. Q3 GDP growth was the strongest for two years and is expected to remain firm in Q4. November payrolls rose by 178k and the unemployment rate dropped to 4.6 percent, but earnings growth remains tepid.

"After the December rate rise, we look for two further hikes in 2017," said Lloyds Bank in a report.

FxWirePro's Hourly USD Spot Index was at 39.4693 (Neutral) at 1325 GMT. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex.