Dollar Gains, Recouping Monday Losses, Amid Muted Trading Flows

  • Traders rebalancing positions ahead of Jackson Hole symposium
  • Loonie pares gain to 3-week high as retail sales reach record

The greenback was near its best level of the day amid a rebound in market sentiment Tuesday, bolstered by gains in global equities and Treasury yields.

Investors continued to look to the Jackson Hole gathering of central bankers at the end of the week. Focus was on keeping risk exposure limited ahead of appearances from Federal Reserve Chair Janet Yellen, European Central Bank President Mario Draghi and a host of other key officials. The dollar was higher versus all of its G-10 peers, recording its first gain in five sessions against the yen, and the Bloomberg Dollar Spot index gained more than 0.3 percent on the day.

  • Flows remained muted and sporadic, with “low visibility,” according to one trader in London. A report that the Trump administration was making progress on tax reform might have added to the improved tone in markets
  • USD/CAD was trading slightly higher. It earlier touched a fresh three-week low at 1.2526 after Canadian June retail sales, ex-autos, rose more than forecast and reached a record for the first half of the year. Despite the early CAD gains, flows were exceptionally light and you could “hear a pin drop” on the trading floor, a trader in Toronto said. Market-implied odds for a BOC rate hike are around 70% for October
  • The greenback touched a fresh high for the day vs the yen around 10am ET and climbed to an almost two-month high against the pound, which fell amid concerns over Brexit negotiations
  • USD/JPY returned to near the daily high at 109.55, which was reached amid price action that was consistent with a few stop-loss buy orders being tripped on the break above 109.50, despite traders only reporting sell orders in that vicinity. Overnight, persistent USD buying by Japanese banks lifted the dollar back over 109.00, according to a trader familiar with the transactions who asked not to be identified because not authorized to speak publicly. Some of that demand was said by a London trader to be on behalf of Japanese importers
  • Further offers line the path to 109.80, according to several traders in Europe and London; large 110.00 option expiries that roll off Friday are likely to ensure offers are layered ahead of that level as well
  • EUR/USD was trading near 1.1750, not far from the 1.1745 low of the day set ahead of the U.S. session, with the EUR gaining some support from cross flows. While reports say Draghi will not announce new policy initiatives when he speaks at Jackson Hole, it’ll be harder for him to sidestep questions on the health of the economy and the inflation outlook
  • At the same time, Yellen is seen as likely to hew close to the recent tone of other Fed speakers, holding on to the prospect of another rate hike by year’s end, even as balance sheet unwinding begins as soon as next month
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