Dollar Starts Week Lower Before Central Bank Meetings, Fed Pick

Updated on
  • Euro declines vs dollar, yen after German CPI misses estimates
  • BOE, BOJ and Fed meet this week; BOE seen raising rates

Dollar Drops Before Fed Chair Call

The dollar started the week with a decline, dropping versus most of its G-10 peers amid month-end profit-taking and ahead of central bank decisions.

The Bloomberg Dollar Spot Index was down 0.2 percent after paring losses of as much as 0.3 percent. The pound and the yen were among the top gainers against the greenback. Trading flows were generally muted as investors waited out portfolio rebalancing that was expected to result in modest dollar selling. Meanwhile, there were also three G-10 central bank meetings this week to look forward to and President Trump was expected to name his pick for the next Fed chair Thursday.

  • The dollar reached its low of the day after a report that the U.S. House was considering phasing in a corporate tax cut over five years, which would blunt the immediate economic impact of tax reform. White House spokeswoman Sarah Sanders later said that Trump’s plan doesn’t include a phase-in 
  • The BOJ, the BOE and the Fed all meet this week. Only the BOE is expected to make a rate move, with markets pricing in an almost 90% chance of a 25bps hike. Investors will focus on comments from BOE’s Carney for clues on whether the expected hike is likely to be the first in a series of increases or a “one-and-done” dovish hike, traders in London said
  • The Fed is likely to reiterate that a rate hike may be appropriate in the near future; traders are more focused on who the next Fed chair will be. A White House official said that Trump plans to announce the new central bank head Thursday
  • USD/JPY is trading ~113.14 vs a session low of of 113.03 reached after the report on tax reform as Treasuries extended their rally. The 10Y UST yield eventually briefly fell below 2.37%
  • EUR/USD is trading ~1.1639 vs fresh session high at 1.1646. EUR declined earlier after German CPI data, relinquishing modest gains from overnight, which were seen as USD was weighed by profit-taking ahead of month-end, traders said. Trailing stop-loss buy orders were tripped as EUR rose in European trading, with residual orders of the same type layered to 1.1660, traders said 
    • Bids to buy EUR are likely to be found ahead of 1.1550, where option barrier strikes are noted. Reflecting the shift in EUR sentiment following last week’s ECB decision to extend QE, 1-mo. risk reversals traded at their lowest level in two months, near par, as the recent hawkish bias evaporates
  • NZD/USD was trading around 0.6873, with the kiwi one of three losers vs the greenback among G-10 peers. The New Zealand dollar returned to a defensive footing after a brief respite late last week, declining toward the 2017 low at 0.6818 seen in May and retested Friday. New Zealand’s finance minister suggested that revising the RBNZ mandate could lead to lower interest rates if an employment target were included
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