FOREX: US Dollar Stabilises as GBP Corrects Intraday Decline
The United States dollar turned slightly higher Tuesday morning on generally upbeat data before flattening out in the afternoon as traders dug in ahead of Wednesday afternoon’s Federal Open Market Committee (FOMC) meeting announcement.
While the May retail sales readings were below expectations, large upward revisions to the March and April data provided some offset. The PPI data indicated a stronger-than-expected uptick in inflation, while the industrial production data was roughly in line with estimates.
Traders are setting up for a more hawkish FOMC statement on Wednesday than after previous meetings. As a result, there is an upside risk to the dollar later in the week, made even greater if either the statement or Fed Chairman Jerome Powell acknowledge that taper talks have begun.
Foreign exchange action saw an incredible flow as EUR-USD fell to 1.2101 lows in the early US session due to the strong US PPI data, followed by short covering into Wednesday’s FOMC announcement on anticipation of more hawkish statement than six weeks ago.
The euro recovered later in the day on light data, though the action was mostly sideways to end the day.
GBP-USD corrected some of its intraday decline but remained net lower on the day. The pairing bottomed at one-month lows of 1.4034 into the US open. Favorable UK labor data was overshadowed by the announcement Monday that the last stage of reopening will be delayed until July 19 from the June 21 date previously announced.
USD-JPY printed an eight-session high into the US open, peaking at 110.17. Pre-FOMC short covering was the key factor but concerns the Bank of Japan may need to extend its COVID relief measures also played a role in the increase.
USD-CAD rallied to a one-month high of 1.2204 in late morning US trade, up from overnight lows of 1.2130. The upward move came as the USD has headed broadly higher, leaving the DXY at one-month highs as well.
Short-covering has been a factor, as positions are pared ahead what may be a less dovish than usual FOMC statement and press conference on Wednesday. Higher energy prices will reduce the USD-CAD upside.
FOREX: US Dollar Stabilises as GBP Corrects Intraday Decline
