US dollar Faces Broad Sell-Off as Investors Shift to FOMC
The US dollar weakened considerably against a basket of its major peers amid economic developments in Europe and Asia. The greenback was relatively idle for a second consecutive day, as market participants await headline data later in the week.
The dollar index fell a quarter percent to 79.93, extending its five-day losing streak. The greenback fell more than half a percent against the Japanese yen on declining US yields, which tend to impact the USDJPY pair. The pair eased off six-month highs, falling below the 1.03 handle.
In Europe, the dollar incurred heavy losses against the euro and British pound, which benefited from US dollar idleness. The common currency jumped 36 pips to 1.3772, extending its five-day winning streak to more than 1.3 percent. The euro was also supported by revised GDP estimates for Italy, which showed the Eurozone’s third largest economy snapped eight consecutive quarters of contraction. The British pound was less bullish on Wednesday, but remained well supported in the mid-1.6450 region.
In North America, repeated failures around 1.07 CAD kept the greenback in check. The USDCAD continued to soften, falling 26 pips to 1.0609. Down-under, the Australian dollar gained 63 pips to 0.9166 USD on waning risk aversion. The AUDUSD pair has gained more than 1.3 percent over the previous five sessions.
The lack of economic data from the United States has shifted the market’s attention to next week’s FOMC policy meetings. Two consecutive months of stronger-than-forecasted jobs growth has raised expectations for a bond taper, a move that would put rate hikes back on the table and support the greenback in the long-run. According to Fed Bank of St. Louis President James Bullard, any cut to record stimulus is likely to be modest, as the central bank continues to monitor inflation.
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