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US Dollar Slides Back into Familiar Territory

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US Dollar Slides Back into Familiar Territory

The US dollar declined Monday, as the euro rebounded and the Japanese yen surged to a three-month high.

The US dollar index, a weighted average of the greenback’s performance versus six major peers, fell to a low of 79.88. The index would later consolidate at 79.93, down 0.13 percent.

Monetary policy speculation may continue to drive the greenback this week, as several Fed officials are expected to make public remarks. Regional Fed Bank presidents William Dudley and Charles Plosser will give speeches Tuesday. On Wednesday regional Fed Bank presidents Esther George and Narayana Kocherlakota will also speak publicly. Fed Chair Janet Yellen will deliver commencement remarks at the New York University Commencement on Wednesday.

The Federal Reserve on Wednesday will release the minutes of the April 29-30 FOMC policy meetings. The Fed pared asset purchasing by another $10 billion at last month’s meetings, a sign policymakers were confident the first quarter slowdown was only temporary. Investors will closely monitor the minutes for clues about a possible rate hike.

The EURUSD rose to a session high of 1.3734 amid concerning remarks from German Bundesbank President Jens Weidmann. According to Weidmann, who is also a member of the Governing Council of the European Central Bank, low inflation is likely to persist for some time. Weidmann acknowledged that capital inflows may be one of the reasons behind the euro’s continued strength.

The euro’s resilience may be put to the test next month if the ECB introduces a new stimulus package to lift the Eurozone out of dangerous deflationary territory.

In economic data, Eurozone construction output declined 0.6 percent in March, following a slight gain of 0.1 percent, the European Commission reported today. Year-on-year, construction output increased 5.2 percent, down from February’s 6.7 percent pace.

The EURUSD consolidated at 1.3719, up 0.15 percent. Initial support is likely found at 1.3668 and resistance at 1.3745.

The yen climbed to a three-month high against the greenback amid signs the Japanese economy was improving. Japanese machinery orders rose 19.1 percent in March, the Cabinet Office reported. Year-on-year, machinery orders were up 16.1 percent.

The USDJPY declined 0.23 percent to 101.2650. Initial support is likely found at 101.19. On the upside, initial resistance is likely found at 102.53. The pair has lost nearly 1 percent over the past five days, as global sentiment continues to favour the yen over the short-term.

The Japanese government will release several batches of economic data this week, including growth indices and trade data. On Wednesday the Bank of Japan will issue a rate decision and monetary policy statement.

In other trading, the GBPUSD advanced to a daily high of 1.6843. The pair later consolidated at 1.6824, up 0.03 percent.

The USDCAD was unchanged at 1.01861 as Canada paused for Victoria Day.

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