The U.S. Dollar staged an intraday rebound Tuesday, recovering from session lows as traders shifted focus to US inflation data and the ECB's expected rate hike.
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Dollar rebounds from session lows as DXY holds near 99.85
The U.S. Dollar staged an intraday rebound Tuesday, recovering from session lows as traders shifted focus to US inflation data and the ECB's expected rate hike.
The U.S. Dollar Index rebounded from session lows to near 99.85 Tuesday, recovering as easing Middle East tensions offset pressure from falling Treasury yields.
"Buy EUR/USD — the ECB is expected to hike Thursday for the first time in nearly three years, supporting the euro even if US inflation is hot," a trading note from the analysis said. The key risk flagged: US inflation prints much hotter than expected, forcing a sharp jump in Fed hike odds and sending DXY back up.
EUR/USD advanced toward 1.1550 during European trading, while GBP/USD recovered above 1.3350 after touching a three-week low. USD/JPY held near 160.15 as traders monitored the risk of intervention by Japanese authorities. Gold posted modest gains near $4,340, though the precious metal remained close to its lowest level since March 24.
The divergence between falling yields and a strengthening dollar is unusual and points to shifting macro expectations. Markets now price a 43.2 percent probability of a 25-basis-point rate increase in December, up from approximately 14 percent a month ago, according to the CME FedWatch tool. The US Consumer Price Index report Wednesday and Producer Price Index data Thursday will be the next test for the dollar's trajectory.
The dollar's move came as Middle East tensions showed signs of cooling. US President Donald Trump said Tuesday he could have a proposal regarding an agreement with Iran within days, while Iran announced the conclusion of its military operations against Israel. The easing of immediate tensions reduced demand for traditional safe-haven assets, including the US dollar.
ECB Decision Looms as Euro Strengthens
The euro gained ground ahead of the European Central Bank's policy meeting Thursday, where the bank is expected to raise its benchmark interest rate for the first time in nearly three years. German industrial production data provided additional support, with output rising 0.4 percent month-on-month in April, matching market expectations and improving from a 0.1 percent decline in March. On an annual basis, industrial production declined 0.5 percent, a sharp improvement from the revised 3.4 percent contraction recorded in March.
China Data and Yen Intervention Risk
Strong Chinese trade data supported broader market confidence. China's trade surplus widened to $105.43 billion in May from $84.82 billion in April. Exports rose 19.4 percent year-on-year, accelerating from 14.1 percent growth in April and surpassing the 15.0 percent consensus estimate. Imports rose 27.4 percent, also above the 25.0 percent forecast. Meanwhile, USD/JPY remained near 160.15, with Japan's Finance Minister Satsuki Katayama reiterating that authorities stood ready to take decisive action if needed.
This article is for informational purposes only and does not constitute investment advice.
[1] U.S. Dollar Rebounds From Session Lows Despite Falling Treasury Yields: Analysis For EUR/USD, GBP/USD, USD/CAD, USD/JPY[2] US dollar slips from recent highs as market focus shifts to inflation data[3] Morning Wrap: ASX 200 to rise, S&P 500 and Nasdaq rebound from worst day of the year[4] Australian Dollar leans on a China prop that's quietly buckling[5] Gold struggles near March lows as hawkish Fed expectations weigh
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