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US Dollar Back on its Heels

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US Dollar Back on its Heels

The US dollar edged lower against a basket of currencies, as the foreign exchange market consolidated and shifted its attention to monetary policy.

The US dollar index, a weighted average of the greenback’s performance versus six commonly traded peers, declined 0.15 percent to 80.53. The index rose to a high of 80.67 on Monday. The latest fall reflects a broader consolidation trend in the currency market, as investors shift their attention to an active second half of the week headlined by monetary policy and US nonfarm payrolls.

The euro rebounded from a three-and-a-half month low, shrugging off weak Eurozone inflation data. The EURUSD advanced 0.17 percent to 1.3621 after falling below the 1.36 handle in the previous session.

Eurozone consumer inflation fell back to 0.5 percent in May, the European Commission reported today. Economists forecast no change to the annual inflation rate, which was at 0.7 percent the previous month. The steeper than forecast fall puts more pressure on the European Central Bank to deploy added stimulus measures at this week’s policy meeting. The ECB is reportedly considering a range of options, including a negative deposit rate and quantitative easing.

May marked the eighth consecutive month Eurozone inflation was below 1 percent.

The markets learned on Monday that German inflation fell to a four-year low in May. German inflation eased to 0.6 percent annually, according to the European Union’s harmonized index of consumer prices.

The European Commission also reported today that Eurozone unemployment unexpectedly declined in April, falling from 11.8 percent to 11.7 percent.

In US data, new orders for US factory goods increased in April, adding further evidence the economy was rebounding in the second quarter after severe weather disrupted the recovery in Q1.

US factory orders advance 0.7 percent in April, after an upwardly revised gain of 1.5 percent the previous month, the Commerce Department reported today in Washington. A broad consensus of economists called for a gain of 1.4 percent.

Excluding transportation equipment, new orders advanced 0.5 percent, official data showed.

The Labor Department will report on May nonfarm payrolls Friday, marking the US dollar’s biggest release of the week. Jobs growth is expected to remain above 200,000 for the month of May, according to forecasts. The US economy added an average of 238,000 private payrolls per month between February and April.

The ADP Institute will provide an advance estimate of jobs growth on Wednesday.

The USDJPY was steady at 102.44, relatively unchanged from the previous close of 102.38. Initial support is likely found at 101.92 and resistance at 102.67.

The USDCAD advanced for a second consecutive day, adding 0.17 percent to 109.18. The pair’s initial support is at 1.0856. Initial resistance is likely found at 1.0927.

The GBPUSD was steady at 1.6740. Initial support is likely found at 1.623 and resistance at 1.6770.

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