Dollar rebounds on short covering after Fed officials dampen market expectation of aggressive rate cuts

Market Review - 25/06/2019  23:53GMT  

Dollar rebounds on short covering after Fed officials dampen market expectation of aggressive rate cuts

The greenback went through a volatile Tuesday's session. Despite extending recent losing streaks to fresh 6-month lows initially, dollar pared intra-day losses made in Asia and rallied in New York session after Fed Bullard's and Chairman J. Powell's less sovish comments and then ended the day broadly higher against majority of its peers.     
Reuters reported St. Louis Federal Reserve Bank President James Bullard said on Tuesday he does not think the U.S. central bank needs to cut interest rates by a half point at its next meeting in July, even though he felt the Fed should have lowered rates last week.   
  
"Just sitting here today, I think 50 basis points would be overdone," Bullard said in an interview with Bloomberg Television. "I don't think the situation really calls for that, but I would be willing to go 25 (basis points)."   Reuters later reported Federal Reserve Chairman Jerome Powell on Tuesday said the U.S. central bank is "insulated from short-term political pressures," as policymakers faced new calls by President Donald Trump to cut interest rates.  
Powell on Tuesday reiterated that the central bank still sees U.S. growth prospects as strong, with unemployment low and inflation near the Fed's 2% annual target, but that he and his colleagues are wrestling with whether uncertainty over trade and other issues support a case for lowering rates.   
  
On the data front, Reuters reported U.S. June consumer confidence fell more than expected, hitting its lowest level since September 2017, according to a private sector report released on Tuesday.   The Conference Board, an industry group, said its index of consumer attitudes fell to 121.5, from a downwardly revised 131.3 the month before. The 58 economists polled by Reuters had expected a reading of 131.1.   The reading for the month prior was revised to 131.3 from 134.1.   
  
Versus the Japanese yen, although dollar initially fell from 107.41 at Asian open to a fresh 5-1/2 month low at 106.79 on active safe-haven yen buying due to escalation in U.S.-Iran tensions, the pair quickly rebounded to 107.14 on short covering in European morning. Despite a retreat to 106.84 in New York on falling U.S. Treasury yields, the greenback later then rallied to session highs oif 107.41 after comments from Fed's Bullard and J. Powell, price last traded at 107.17 near the close.  
  
Although the single currency extended its recent upmove to a fresh 3-month high at 1.1412 in Asia, price retreated on profit taking and fell to 1.1377 in Europe on selling in eur/jpy before rebounding to 1.1398 in New York but only to tumble to session lows of 1.1345 on usd's broad-based strength following comments by Fed officials.  
  
The British pound moved sideways in Asia and despite a brief jump to a fresh 1-month high at 1.2784 at European open, cable quickly erased its gains and later dropped to 1.2673 in New York on usd's strength as well as lingering fear of a no-deal Brexit .  
  
In other news, Reuters reported President Donald Trump on Tuesday threatened to attack Iran in retaliation for any strikes by Tehran "on anything American," after Iran said new U.S. sanctions precluded any diplomacy and called the White House actions "mentally retarded."   "Iran's very ignorant and insulting statement, put out today, only shows that they do not understand reality. Any attack by Iran on anything American will be met with great and overwhelming force. In some areas, overwhelming will mean obliteration," Trump said in a Twitter post.   
  
  
Data to be released on Wednesday :  
  
New Zealand RBNZ interest rate decision, Germany GfK consumer sentiment, France consumer confidence, Swiss investor sentiment, UK BBA mortgage approvals, and U.S. MBA mortgage application, durable goods, durables ex-transport, durables ex-defense, goods trade balance, wholesale inventories.