Dollar Drops as Fed's Soft-Inflation Worry Keeps Bulls at Bay

  • Lack of fresh catalysts weighs on interest for new positions
  • Aussie gains capped by large expiry as euro orbits $1.1800

Cumberland CIO Says Inflation Tamed ‘for the Time Being’

The Bloomberg Dollar Spot Index reversed Monday’s gains as the latest comments by Federal Reserve policy makers capped the greenback’s rebound.

The Norwegian krone and Australian dollar led gains among the Group-of-10 currencies. The greenback felt the heat from Fed speakers who urged caution over low inflation. Bank of Minneapolis President Neel Kashkari may be a known dove, yet his latest remarks that highlighted the importance of Friday’s consumer price data effectively suppressed demand from medium- to long-term accounts for fresh exposure in the majors. News that Republicans are mulling a compromise tax overhaul did little to support the dollar.

Fast money investors and intraday accounts dictated price action in early London trading, according to a Europe-based trader, who added that interbank names are looking to fade moves near or greater than 1 percent. Amid a light data calendar, gamma trading kept the majors within thin ranges. The euro stayed for a second day near the $1.18 handle, where 548 million euros worth of options roll over on Tuesday.

  • While front-end risk reversals edged lower in EUR/USD, DTCC data showed investor demand for upside exposure on expiries up to September
    • The common currency may find support from bidding interest near 1.1750 whereas supply is noted within 1.1840-50 and north of 1.1875, said the trader, who asked not to be identified as he wasn’t authorized to speak publicly
    • Demand for EUR/GBP on a dip to 0.8990-00 could weigh on any dollar gains
  • The Australian dollar jumped off support from its 21-DMA, currently at 0.7900, and as iron ore prices extended gains and a business confidence index rose to its highest since April
    • AUD/USD rose to 0.7939 day high; traders keep a close eye on 0.7950 expiry for A$2.5b: DTCC
  • The yen rose for the first day in three as Ichimoku conversion line caps USD/JPY yet again 
  • The British pound was little changed at 1.3035 as of 10:30 a.m. London, with support seen at 1.3000, the low on July 26
  • Aside from a G-10 summer lull, the South African parliament’s secret vote could mean the replacement of acting president Zuma, and rand price action may become the highlight of the day
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