Dollar Near Session Lows Amid Mixed Data, Month-End Rebalancing

Updated on
  • Euro climbs above 1.1250; ECB official sees outlook balanced
  • USD losses pared after upward correction to MNI Chicago report

The euro stalled after rising to a fresh weekly high, while the dollar remained on a defensive footing amid month-end portfolio rebalancing flows and as U.S. Treasury yields dropped.

The dollar pared its losses after a report on business activity was corrected to show an increase, though it was also jostled by volatility in the pound and resource-sensitive currencies as traders responded to U.K. opinion polls and a drop in oil and some commodities.

  • Euro gains came against a backdrop of remarks from ECB officials. Executive Board Member Lautenschlaeger said in a speech that “the recovery continues to firm and broaden, while the risks to growth, in my view, are now balanced. Worries about deflation have disappeared.” Lautenschlaeger also noted that domestic wage and price pressures remain subdued. ECB’s Weidmann later echoed the theme of an improving economy and said the ECB is starting to discuss whether to change its guidance
  • Traders have been expecting that the ECB may, as early as next week, adjust its language on the economic outlook to reflect a recently improved economic picture. Speculation has been building over a timetable for the ECB to begin tapering its EU60b monthly asset purchase plan that ECB President Draghi has said will run until at least the end of 2017. Draghi said at his last press conference that “a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term”
  • At the same time, traders are keeping an eye open for other U.S. economic data due this week, including the all-important monthly employment report set for release Friday morning. Fed’s Beige Book released Wednesday afternoon showed most districts reported modest or moderate economic growth and cited labor shortages across a broadening range of occupations and regions. Most firms across districts noted little change to the recent trend of modest wage growth, although many reported offering higher wages to attract workers where shortages were most severe. Traders will scrutinize the jobs report for evidence of these pressures
  • The Bloomberg dollar index, which was down ~0.2%, pared its drop after MNI corrected its May Chicago report to show that the business activity index beat estimates, after initially saying that the index missed estimates
  • USD/JPY dropped to a new low since May 18 at 110.49, slicing through technical support from the Tuesday low at 110.67 that had been underpinned by strong bids. USD appeared to trigger stop-loss sell orders on the break of that support level and may be headed toward the 200-DMA at 110.22, which is expected to be buttressed by bids
  • GBP/USD rose to a fresh high for the day at 1.2921, reversing an overnight drop to 1.2769 as the currency was whipsawed by conflicting opinion polls ahead of next week’s general election. GBP dropped after one poll suggested the Tory party may not gain a majority in the House of Commons, but rebounded later as another poll showed the Conservatives with a comfortable lead
  • The Canadian dollar and other resource-sensitive FX fell vs the USD as WTI crude declined to as low as $47.73/bbl
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