Dollar Rebounds From 14-Month Low as Fed Awaited, Meetings Eyed

Updated on
  • Capitol Hill events return focus to Trump administration
  • Commonwealth currencies lead gains vs USD in muted session

Balance Sheet in Focus Ahead of Fed Meeting

The dollar rebounded slightly from a 14-month low as Treasury yields rose while markets awaited this week’s Federal Reserve meeting and kept a wary eye on Capitol Hill meetings that involve members of the Trump administration.

The greenback was mixed versus its G-10 peers and the Bloomberg dollar index saw a gain of less than 0.1 percent. Flows were described by traders in London and Toronto as modest amid the elevated event risk. With Capitol Hill appearances Monday and Wednesday that include some of President Trump’s inner circle, concern is over whether developments may further impede the administration’s fiscal agenda. At the same time, the Fed is expected to keep rates and policies on hold, though it may elaborate on balance-sheet reduction or the timing of any future rate increases.

  • USD/JPY rose to a fresh high of 111.32 as stop-loss buy orders appeared to trip on a break of the overnight high at ~111.20; the pair, which faces resistance at 111.70 from its 100-DMA, fell to a low of 110.62 overnight, before seeming to find technical support near its 233-DMA at 110.64, a trader in Toronto said. Extended JPY positioning may pose a risk to the currency’s outlook, said Neil Jones, head of FX sales to financial institutions at Mizuho Bank in London. CFTC data Friday showed leveraged accounts increased net JPY shorts to the most since August 2015, while asset managers increased JPY shorts more modestly
    • A breach of the 233-DMA may open risk of steeper decline toward the June 14 low 108.83, though traders expect the yen to remain on a defensive footing as the BOJ remains a standout from its peers by anchoring rates near record lows as it struggles to achieve inflation objectives
  • The euro dropped vs all of its G-10 peers apart from the kiwi following the lowest PMI reading in 6 months, underscoring that the ECB is likely to maintain its cautious approach to monetary policy. Draghi has said the bank will begin discussions in the autumn on the timing and approach to QE tapering
    • The market seems to be “getting towards the end of this piece of elastic” for the euro’s rally, said Scotiabank strategist Shaun Osborne. “These moves are looking a little bit extended and a bit capped out”
  • EUR/USD was trading with slight losses near the session low at 1.1626 after eclipsing Friday’s almost 2-year high by a pip during Asian trading. With the European vacation season getting underway, traders expect little fresh insight into ECB policy thinking before Draghi appears at the Kansas City Fed’s annual symposium in Jackson Hole next month
  • Commonwealth currencies gained against the greenback, including the Australian and Canadian dollars and the pound; the Aussie rebounded from its drop late last week and traded within striking distance of Thursday’s 2-year high at 0.7989 before paring gains. On Friday, RBA Deputy Governor Debelle downplayed notions that the central bank was shifting to a more hawkish footing, while also emphasizing the challenges posed by a strong currency; stronger-than-expected CPI data due this week would increase the RBA’s challenge, a trader in London said
  • The Canadian dollar rose to a 14-month high with the USD dropping below 1.2500 to its lowest since May 2016 after Canada wholesale trade sales rose more than expected; meanwhile, the pound rose as high as 1.3058
  • Swiss National Bank President Thomas Jordan said the franc is “significantly overvalued,” and the central bank will maintain negative interest rates and intervene if needed
  • Some information comes from foreign exchange traders familiar with the transactions who asked not to be identified because they are not authorized to speak publicly

— With assistance by Alexandria Arnold

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