The Dollar Weakens Against Euro Amid Lower Treasury Yields
Euro Strengthens as Dollar Dips
The dollar dipped to a one-month low versus the euro on Wednesday amid lower Treasury yields as traders braced for a key U.S. inflation report later in the day that could dictate the path of Federal Reserve policy.
Yen Weaker Due to Wide Yield Gap
However, the yen hovered close to a two-week low as a still-gaping yield gap between local bonds and U.S. peers continued to encourage selling of the Japanese currency.
Euro Edges Up
The euro edged up 0.03% to $1.0823 in Asian trading hours, reaching $1.0828 for the first time since April 10.
Dollar Index Down
The Dollar Index, which measures the currency against six top rivals, eased 0.11% to 104.94, after dipping to a 1-1/2-week low of 104.92 earlier.
Focus on U.S. Inflation Report
The benchmark long-term U.S. Treasury yield edged down to 4.4414%, extending a 3-1/2-basis point retreat overnight. Wednesday’s report on core consumer prices is expected to show CPI rose 0.3% month-on-month in April.
Market Expectations
Analysts’ forecasts are concentrated at 0.3%, with expectations that the rate path would require more than a single modest surprise to swing markets considerably.
Fed Chair’s Assessment
Fed Chair Jerome Powell gave a bullish assessment on Tuesday of the U.S. economy, with an outlook for continued growth and confidence in falling inflation largely intact.
Japanese Yen vs. Dollar
Despite broad dollar weakness overnight against most peers, the dollar continued to climb against the yen, reaching 156.245 yen on Wednesday.
Yen’s Fortunes and Potential Intervention
The BOJ will hope that the U.S. CPI release is in line with expectations to avoid a difficult conversation about the need for a third round of intervention.
Other Currency Movements
The yuan bounced back from a two-week low versus the dollar, while antipodean currencies benefitted from China optimism.
In Conclusion
Overall, the forex market continues to react to economic data and central bank sentiments, shaping the movement of major currencies.
