Dollar keeps its footing ahead of US PMI data, BOC rate decision

The dollar capitalized on safe-haven flows on Wednesday and the US Dollar Index snapped a three-day losing streak. The benchmark 10-year US Treasury bond yield continues to edge higher and helps the greenback hold its ground early Wednesday while the market mood remains cautious. ISM Manufacturing PMI for May will be featured in the US economic docket later in the day. The Bank of Canada (BOC) will announce its interest rate decision and the US Federal Reserve will publish its Beige Book.

Atlanta Fed President Raphael Bostic explained that his view about the Fed taking a “pause” in its rate hike cycle in September should not be seen as a suggestion that the central bank will come to rescue markets. Bostic further added that he would be “fully comfortable” with continuing to hike rates if inflation were not to move down significantly. Meanwhile, US Treasury Secretary Janet Yellen told CNN that they cannot rule out further inflationary shocks with crude oil prices remaining high.

In the early Asian session on Wednesday, the data from China showed that the Caixin Manufacturing PMI improved to 48.1 in May. Although this print came in better than the market expectation of 47, it pointed to an ongoing contraction in the manufacturing sector’s business activity. Reuters reported that China admitted on Wednesday that it conducted military exercises near Taiwan earlier this week. Nevertheless, US stock index futures post modest gains in the early European morning.

EUR/USD dropped below 1.0700 on Tuesday amid broad dollar strength. The data published by Eurostat showed that the HICP in the euro area jumped to 8.1% on a yearly basis in May but the hot inflation print failed to help the shared currency gather strength. The pair stays relatively quiet early Wednesday and consolidates its losses above 1.0700.

USD/CAD fell to its lowest level in more than a month and closed the fifth straight day in negative territory on Tuesday. Statistics Canada reported that the Canadian economy grew at an annualized pace of 3.1% in the first quarter, compared to analysts’ estimate of 5.4%, limiting the pair’s downside in the second half of the day. The BOC is expected to hike its policy rate by 50 basis points later in the day and USD/CAD fluctuates in a narrow range around the mid-1.2600s beforehand.

AUD/USD clings to its weekly gains near 0.7200 early Wednesday. The data from Australia revealed in the Asian session that the GDP expanded by 3.3% on a yearly basis in Q1, slightly better than the market forecast of 3%.

GBP/USD posts small daily gains and holds above 1.2600 in the European morning.

Gold broke below its weekly trading range amid rising US T-bond yields and extended its slide toward $1,830 on Wednesday.

Bitcoin struggled to gather bullish momentum following Monday’s upsurge and closed virtually flat on Tuesday. BTC/USD continues to move sideways above $31,000 in the European morning. Ethereum staged a downward correction and lost nearly 3% on Tuesday after failing to reclaim $2,000. ETH/USD was last seen posting small daily losses at $1,930.

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