Dollar Pares Losses Against Yen After Dropping Most in a Month

  • Japanese currency gains amid cross liquidation; stocks decline
  • Pound falls as BOE holds steady with only one dissent

U.S. PPI Exceeds Forecast at 0.5% in April

The dollar pared its losses against the yen as equities rebounded and as a round of stale position liquidations abated.

The greenback was down about 0.3 percent against the Japanese currency, after earlier falling the most since April 11. The dollar rebounded as stocks eased losses and Treasuries pared gains. The greenback dropped earlier even after the April producer price index rose more than expected, adding to the case for a June rate increase by the Federal Reserve.

  • Flows were modest in the session as trader focus shifted from one currency pair to the next; early selling of sterling and the GBP/JPY cross spilled over into USD/JPY, forcing a liquidation of weak longs. At the same time, EUR/JPY longs also unwound as that pair fell to its lowest since the start of the week
  • The Bank of England left rates and policies on hold while sounding a slightly more hawkish tone as inflation continues to trend above the bank’s preferred range. Shortly after the BOE decision, the dollar gained a brief lift as Treasury yields rose following a report that the U.S. producer price index rose 0.5% m/m, surpassing estimates for a gain of 0.2%. With inflation indicators foremost in trader minds, the Friday report on April U.S. consumer prices is seen as the next potential catalyst for trading
  • USD/JPY returned to near 114.00 after dropping to a fresh low for the session at 113.46 as stop-loss sell orders were tripped, said traders familiar with the transactions who asked not to be identified because they are not authorized to speak publicly. Other stops were tripped vs GBP and EUR, a trader in New York said
  • The pound fell to 1.2850, its lowest in a week, before bids cushioned the fall; the Monetary Policy Committee left rates and policies on hold with a vote of 7-1 and noted that policy may need to be tightened “by a somewhat greater extent over the forecast period” than currently priced by markets. No member sided with Kristin Forbes in calling for a rate hike, disappointing some expectations for a second dissent
  • Meanwhile, ECB Vice President Vitor Constancio reiterated that the bank is in no hurry to taper QE, reiterating that it is committed to its policy path until December, “with certain concrete behavior of monetary policy”; “that means automatically that in the fall we will have to decide what we will do next”
  • USD/CAD pared gains to trade around 1.3697 after earlier rising to 1.3770, its highest since May 5, as Treasury yields initially rose after the PPI report. The CAD was on defensive footing from overnight after Moody’s downgraded six Canadian banks amid concern about “a more challenging operating environment”
  • EUR/USD fell to its lowest for the week before paring the drop, trading to 1.0839 as the dollar built early gains. The decline was cushioned by bids under 1.0850 that extend toward 1.0800 and as EUR/GBP rose to a fresh high for day, driven by GBP liquidations. EUR approached technical support at 1.0827 from its 200-DMA and 1.0821 from the opening rate the day after the first round of voting concluded in the French presidential race. Stop-loss sell orders are expected below 1.0820, traders said
Before it's here, it's on the Bloomberg Terminal.