Dollar Gains Amid Advance Against Commodity-Reliant Currencies

Updated on
  • Beige Book says labor markets tight, consumer spending mixed
  • Sterling dips after Tuesday surge; Parliament approves vote

The dollar remained near session highs with its strongest gain this month as commodity-dependent currencies fell amid a drop in oil.

The Bloomberg Dollar Spot index was up more than 0.4 percent, its biggest advance since March 28, led by gains of more than 1.3 percent against the Mexican peso. The greenback, which recouped more than half its losses from Tuesday, was aided by 10-year U.S. Treasury yields grinding higher during the U.S. session to above 2.21 percent.

  • The USD posted gains against all of its G-10 peers, with the biggest advance against the AUD, NOK and CAD. Despite the move, the dollar is trading with a broadly defensive tone for the week as U.S. economic data disappoints vs expectations, casting doubt on the Fed’s stated plan to raise interest rates a further two times this year. Market-implied odds of a June rate hike have dwindled to ~47%
  • The Fed’s Beige Book showed the U.S. economy expanded at a modest to moderate pace. The Beige Book showed mixed consumer spending and a tight labor market, pointing toward a continuation of a steady expansion without a rapid pickup
  • The pound rally paused as the U.K. Parliament voted to set the June 8 election process in motion. Flows were subdued in the session, especially compared to Tuesday’s frantic pace, when traders scrambled to cover sterling shorts after Prime Minister Theresa May unexpectedly called for the election
  • GBP/USD trading at ~1.2778 vs Tuesday’s high of 1.2905 seen amid a short-covering rout. Bids to buy the pound filled below 1.2800 with buyers ahead of 1.2770 cushioning losses and additional bids at 1.2745. The market still holding sizable short positions that had been set well before May’s surprise announcement
  • EUR/USD trading at 1.0711 vs a mid-morning low of 1.0700. EUR stalled at 1.0737 overnight, close to its Tuesday high at 1.0736, setting up that level as nearby technical resistance. The euro may remain on a defensive footing ahead of this weekend’s first round French presidential election that remains too close to call, the four main contenders running neck-and-neck in recent polls
  • USD/JPY trading at ~108.85, near the middle of its 108.38/109.18 daily range, with JPY losses driven in part by the drop in Treasuries; support from bids at 108.30 and 108.10/15, while offers above 109.20 up to 109.50 capping dollar gains for now