Dollar retreats to start the week, eyes on Lagarde’s testimony

Markets started the new week on a cautious tone as investors await speeches by central bankers. The US Dollar Index (DXY), which managed to post modest gains last week, edges lower in the early European session on Monday. European Central Bank (ECB) President Christine Lagarde will testify before the Committee on Economic and Monetary Affairs of the European Parliament at 1300 GMT. Although the US stock and bond markets will be closed in observance of the Juneteenth holiday, St. Louis Federal Reserve President James Bullard is scheduled to speak later in the day.

The DXY is down nearly 0.3% in the European morning at around 104.40. Over the weekend, Federal Reserve Governor Christopher Waller noted that he would support a 75 basis points rate hike in July if inflation data were to come in line with his expectations. Meanwhile, Cleveland Federal Reserve Bank President Loretta Mester said that it would take two years for inflation to decline back to the Fed’s target of 2%.

In the early trading hours of the Asian session on Monday, the People’s Bank of China (PBOC) announced that it left the 5-year Loan Prime Rate unchanged at 4.45%. Additionally, the US is reportedly reviewing tariffs on Chinese imports and also evaluating a pause on federal gas tax to bring down prices.

Following Friday’s decline, EUR/USD ended the previous week virtually unchanged. In the early European session, the pair is up modestly at around 1.0530. ECB Governing Council members Joachim Nagel and Fabio Panetta will speak later in the day. In the meantime, the data from Germany showed that the annual Producer Price Index in May was 33.6%, compared to the market expectation of 33.5%.

GBP/USD fluctuates in a narrow range above 1.2200 on Monday. The UK’s Junior Treasury Minister Simon Clarke said on Monday that he was not expecting a recession in the UK and added that the long-term outlook for the economy was “really positive.” These comments, however, failed to help the British pound.

Fueled by the Bank of Japan’s (BOJ) inaction, USD/JPY registered impressive gains on Friday before going into a consolidation phase below 135.00 early Monday. The BOJ announced on Monday that it offered to buy unlimited amounts of 5 and 10-year Japanese Government Bonds (JGBs).

Gold lost its traction on Friday amid a rebound witnessed in the US Treasury bond yields and erased a portion of its weekly gains. XAU/USD moves up and down in a narrow range above $1,840 on Monday.

Bitcoin extended its slide and fell below $20,000 for the first time since December 2020 over the weekend. BTC/USD ended up losing more than 20% on a weekly basis and was last seen trading within a touching distance of $20,000. Ethereum recovered modestly after having dropped below the key $1,000 mark on Saturday but failed to gather further momentum. At the time of press, ETH/USD was down 4% on the day at $1,080.

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