Dollar Surfaces for Air as U.S. Yields Recover Before ECB Meets

  • Aussie holds gains as funds leave buy orders just below 0.79
  • Euro may have more scope to the downside Thursday: Daiwa

European Central Banks Watch ECB for Policy Clues

The dollar selloff finally ground to a halt as Treasury yields rose and euro bulls took some money off the table ahead of the European Central Bank’s policy meeting Thursday.

The greenback clawed higher against most of its peers, although sentiment remained fragile and the Bloomberg Dollar Spot Index hovered above a 10-month low. Block trades in 10-year Treasury futures in the New York session set the dollar’s risk-off tone overnight after President Donald Trump healthcare reforms faltered, according to traders who asked not to be identified as they aren’t authorized to speak publicly. A recovery in the yields during Asian trade spurred some unwinding of euro and sterling longs ahead of the ECB meeting, they added.

“There are two themes in the markets: one is dollar weakness coming from concerns about the Trump administration; another is concern the ECB may try to contain the heightened expectations for monetary tightening," said Yuji Kameoka, chief foreign-exchange analyst at Daiwa Securities Co. in Tokyo. "In that regard, euro is likely to have more scope to the downside tomorrow.”

The Australian dollar retained the bulk of Tuesday’s gains inspired by the Reserve Bank of Australia. Spot traded above 0.79 for the last 16 hours, helped by funds which left buy orders between 0.7885/95, according to Asia-based currency traders.

  • AUD/USD gains 0.2% to 0.7932 after touching a two-year high of 0.7943 in NY session
    • Iron ore traded on Dalian commodity exchange up 3.2% to 529 yuan/MT
    • Spot outperforms kiwi on further buying of the cross by macro funds
    • Yield on 3-year note steady at 2.082%
  • EUR/USD falls 0.1% to 1.1542 versus 1.1541-57 range
    • EUR525m of 1.1600 options expiring today
    • ECB is said to study stimulus options for decision seen in fall; options for winding down QE said to be evaluated by ECB staff but there is little chance of policy change until after summer
  • BBDXY is little changed at 1,167.39 after falling to 10-month low of 1,165.98 Tuesday
  • USD/JPY steady at 112.02 as BOJ begins two-day policy meeting
  • PBOC’s daily fixing for USD/CNY fell to 6.7451, lowest since Oct. 20 2016
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