Dollar rally takes a break ahead of mid-tier US data

Fueled by hawkish Fed bets, the US Dollar Index (DXY) gained nearly 1% on Monday and touched its highest level since December 2002 above 105.00. Ahead of the Producer Price Index (PPI), NFIB Business Optimism Index and IBD/TIPP Economic Optimism Index data from the US, the DXY consolidates its gains. The European economic docket will feature the ZEW Survey – Economic Sentiment for the euro area and Germany.

The 10-year US Treasury bond yield gained more than 6% on Monday and the 2-year yield rose nearly 10%. Both references climbed above 3.3% and are now about to invert. Several news outlets claimed that the Fed could opt for a surprise 75 basis points (bps) rate hike at this week’s meeting after the latest inflation data. Economists at JP Morgan and Goldman Sachs both revised their forecasts and now see the Fed raising its rate by 75 bps on Wednesday. Finally, the CME Group FedWatch Tool shows that markets are pricing in a 98% probability of a 75 bps rate hike this week, compared to only 4% last week.

Wall Street’s main indexes suffered heavy losses on Monday but US stock index futures are rising between 1% and 1.7% early Tuesday. In the current market environment, however, a rally in US stocks should remain as a technical correction of Monday’s slump.

EUR/USD dropped below 1.0400 on Monday but managed to recover above 1.0450 early Tuesday. The data from Germany showed that the Consumer Price Index (CPI) remained unchanged at 7.9% on a yearly basis in May.

GBP/USD touched its lowest level since May 2020 at 1.2107 on Monday. The pair gained traction in the European morning and was last seen rising toward the 1.2200 mark. The UK’s Office for National Statistics reported earlier in the day that the ILO Unemployment Rate edged higher to 3.8% in three months to April, compared to the market expectation of 3.6%. In May, the Claimant Count Change arrived at -19.7K, missing analysts’ estimate of -49.4K by a wide margin.

USD/JPY stays in a consolidation phase below 135.00 on Tuesday. The Bank of Japan (BOJ) announced on Tuesday that it has set a new offer for its bond-buying programme on June 15. Meanwhile, Japanese Finance Minister Suzuki reiterated the recent rapid weakening in the yen was concerning and that they will take appropriate steps on FX if necessary.

Gold lost more than 2% on Monday amid surging US yields and posted its largest one-day drop since March. XAU/USD moves up and down in a relatively narrow channel below $1,830 early Tuesday.

Bitcoin fell 15% on Monday and extended its slide on Tuesday. After coming within a touching distance of $20,000, BTC/USD rose above $22,000. Ethereum is trading at its lowest level since January 2021 near $1,200.

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