U.S Dollar Lifted Out of Lows against Major Currencies
Heading into the end of the week, the United States dollar is mixed against its major trading partners as markets look at a variety of signals ahead of next week’s major data and midweek Federal Open Market Committee (FOMC) meeting.
Forex traders are in the known that while the data schedule is light on Monday, the release of monthly retail sales, producer inflation and industrial production data on Tuesday and home building data Wednesday morning precede the week’s main event-the FOMC’s announcement.
For the benefit of market data, analysts hope to see no changes to policy, but slightly more hawkish language in the statement, upward adjustments to the Summary of Economic Projections and questions for Chairman Powell about taper talk.
A quick summary of foreign exchange action
EUR-USD has dropped back to the mid-1.2100s after earlier carving out a two-day high at 1.2196. This is the product of a broadly, albeit moderate, decline in the euro concurrent with a broad firming in the dollar, which has lifted out of lows.
The forex market looks to be trading off a rise in the dollar’s yield advantage, with the 10-year Treasury yield net flat at prevailing levels while the 10-year Bund yield is down by 2.5 basis points.
The lack of EU data and no major changes in the ECB stance in their statement on Thursday will limit the pair’s upside.
USD-JPY has continued to oscillate around the 109.50 level. The sharp drop in US Treasury yields Wednesday weighed on the pair. The failure to sustain gains above 110.00 after foraying above that point for first time in two months last week, also appears to have weighed on sentiment somewhat.
The competing data, with weaker employment growth and stronger inflation, has convinced markets that a Fed taper is further off into the future than it was a month ago, but caution remains ahead of next week’s meeting.
USD-CAD has ebbed back from recent range highs, back to levels under 1.2100, leaving horizontal resistance at 1.2135 and 1.2150 unchallenged. The pair has been trending down since March 2020. The outlook for the Canadian dollar remains to the upside due to an upward trajectory in oil prices.
GBP-USD hit a two-day high at 1.4186, reflecting dollar softness on lower yields. UK data released on Thursday showed stronger-than-expected monthly GDP growth, but softer readings for manufacturing, production, and construction.
While the outlook is positive for the UK, any delay in the final stage of reopening scheduled for June 21 would be a setback.
U.S Dollar Lifted Out of Lows against Major Currencies
