Dollar rallies broadly on active short-covering in New York session: May 4, 2016

Market Review - 03/05/2016 22:04GMT 

Dollar rallies broadly on active short-covering in New York session

The greenback rebounded from multi-month lows against the other major currencies on Tuesday as investors decided to lock in their profits after last week's policy decisions by the Bank of Japan and the Federal Reserve. 

Versus the Japanese yen, although the greenback weakened again in Asia and briefly fell to a fresh 18-month trough at 105.55 in European morning on Tuesday, price rebounded to 105.91 and later to 106.48 in New York afternoon. 

The single currency edged higher above Monday's high of 1.1535 to 1.1542 in Asia and then retreated to 1.1522 before rallying to a fresh 10-month peak at 1.1617 in European morning. Later, intra-day decline in sterling pressured euro/usd pair lower and price fell to a fresh session low of 1.1501 near New York midday before recovering, price later fell to session lows of 1.1496 at New York close. 

On the data front, Eurostat showed euro zone's producer price inflation rose more-than-expected last month. The official data showed that euro zone PPI rose to a seasonally adjusted 0.3% in April, from -0.7% in the preceding month. 

The British pound found support at 1.4660 ahead of European open and then rallied to a fresh 4-month peak at 1.4770 in European morning before tumbling to as low as 1.4632 in New York morning after data showed that manufacturing activity in the U.K. contracted in April for the first time in over three years, later price tumbled to 1.4530. 

In a report, market research group Markit said that its U.K. manufacturing PMI fell to a seasonally adjusted 49.2 last month from a reading of 51.0 in March. That was its lowest level since February 2013. Market had expected the index to advance slightly to 51.2 in April. 

In other news, the Reserve Bank of Australia cut interest rates to an all-time low of 1.75 percent on Tuesday, the first easing in a year as it seeks to restrain a rising currency and stave off the creeping curse of deflation. The surprised rate cut from the RBA sent the aud/usd pair lower from intra-day high of 0.7720 to 0.7556 in Asia and then 0.7486 in New York morning before stabilising. 

BoJ Governor Kuroda said on Tuesday, 'will take additional easing measures if necessary.' Meanwhile, Japanese FinMin Aso said, 'one sided abrupt, speculative movements in FX have further intensified; FX movement have implication for the economy; will keep a close eye on FX market, will respond if necessary; steps will be in line with agreement at G20.' 

Fed's Williams said in Bloomberg radio interview, 'agreed with decision not to raise rates this year yet; expects Fed to raise rates gradually over the next couple years; expects 2 percent GDP growth this year; to raise rates in June need to see rise in inflation toward June, continued jobs gains; if see continued progress on economy, that would be enough to raise rates in June; pretty confident U.S. is on the right track on inflation; we do have reasonably well-anchored inflation expectations.' Later, he added, 'Fed will probably try to avoid using negative rates in the future; negative rates have costs as well as benefits.' 

Data to be released on Wednesday: 

New Zealand unemployment rate, employment change, participation rate, labour cost index, Australia AIG service index, building permits, France imports, exports, trade balance, current account, Markit service PMI, Italy Markit service PMI, Germany Markit service PMI, Eurozone Markit service PMI, retail sales, U.K. Markit construction PMI, U.S. mortgage applications, ADP employment change, trade balance, non-farm productivity, unit labour cost, Markit service PMI, Redbook, ISM non-manufacturing PMI, factory orders, durable goods, Canada imports, exports and trade balance.