Dollar Rebounds Off 10-Month Low as UST Yields Recover

  • USD/JPY goes from low to high in an hour, tripping stops
  • ECB and BOJ meetings this week distract from USD woes

The dollar rebuilt modest gains after dropping to a fresh 10-month low as doubts linger over the course of U.S. monetary policy after a weak inflation print undercut the greenback Friday.

The euro rose to near a 14-month high as the dollar fell, shifting attention to the shared currency ahead of Thursday’s policy meeting at the European Central Bank. The euro approached the 1.1489 high set a week ago as markets speculate that the central bank is preparing to slim down its asset-buying programs and as the European economy returns to a more stable footing.

  • The euro is higher versus a majority of its G-10 peers while the Bloomberg euro index is up ~2.25 percent since the last ECB meeting on June 8, below its recent peak of almost 3% in gains. Speculation continues to build that the ECB will, in coming months, announce a tapering of asset-buying programs that have helped the euro-area economy rebound in recent months. While Thursday’s meeting is seen as premature for any substantial changes in policy, the bank may lay the groundwork for an announcement later this year, perhaps when Draghi speaks at the Kansas City Fed’s annual symposium in Jackson Hole in August
  • Trading flows are muted across all pairs and ranges are mostly narrow as traders and investors keep risk profiles low ahead of a cluster of central-bank meetings that also includes the Bank of Japan meeting on Thursday and the Federal Reserve meeting next week
  • USD/JPY rose to a fresh high at 112.87 as stops were tripped above 112.80 and as euro-yen demand emerged to support the pair, a trader said. USD/JPY was also supported by a gain in the U.S. Treasury 2-year yield. The new high in USD/JPY came about an hour after the pair fell to a new low for the session at 112.33, underscoring sparse trading conditions with Japanese markets closed for the Marine Day holiday
  • EUR/USD also rose to a fresh high for the day at 1.1487, coming within striking distance of the 14-month high set last week at 1.1489 before option-related offers capped the pair, according to traders familiar with the transactions who asked not to be identified because they are not authorized to speak publicly. Similar option-related offers remain in place Monday, some tied to large 1.1500 option strikes that expire next week, traders in Asia and London said
  • The pound fell to a fresh low for the day at 1.3051 just ahead of the London close; Monday marked the resumption of Brexit negotiations with the EU, but comes at a time when reports say there is strife within the U.K. Cabinet
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