Dollar retreats broadly as falling U.S. yields trigger long liquidation

Market Review - 17/07/2019  23:56GMT  

Dollar retreats broadly as falling U.S. yields trigger long liquidation

The greenback pared its gains made this week and ended broadly lower against majority of its peers on Wednesday due to sharp fall in U.S. Treasury yields, the benchmark 10-year yield dropped from 2.11% to 2.043%. Sterling weakened marginally to a fresh 27-month low at European open on continued market concerns of no-deal Brexit risk before staging a strong recovery due to short covering in New York on usd's weakness.  
  
Reuters reported Kansas City Federal Reserve Bank President Esther George on Wednesday said she is prepared to adjust her views on interest rate policy if looming economic risks materialize, a sign she might be open to lowering borrowing costs.  
The comments by George, who has a vote this year on the Fed's rate-setting committee and is considered among the policymakers least inclined to keep interest rates low, is a sign of the growing momentum at the U.S. central bank for rate cuts.  
George told a symposium on agriculture in Kansas City she thought recent economic data pointed to ongoing strength in the economy but that risks were mounting.  
  
Versus the Japanese yen, dollar swung broadly sideways in lackluster Wednesday's session as focus was on euro and sterling. Price fell from 108.32 at Asian open to 108.12 and then rebounded to 108.30 in Europe before falling subsequently to session lows of 107.95 on falling U.S. Treasury yields and weakness in U.S. equities, the Dow fell 115 points or 0.42% at 27219.  
  
Although the single currency recovered to 1.1217 in Asia, price fell in tandem with sterling to a 1-week low at 1.1201 at European morning. However, euro erased its losses and rebounded to 1.1222 in Europe, then higher to session highs at 1.1233 at New York midday on usd's weakness, price last traded at 1.1223 at the close.  
  
In other news, Reuters reported European Central Bank board member Benoit Coeure said on Wednesday that the Governing Council was ready to act if necessary to help inflation move towards its aim close to but below 2% in the euro zone.   
The bank's Governing Council put off any rate hike for at least a year at its June 5-6 meeting and President Mario Draghi emphatically opened the door to more stimulus in the following weeks.     
On the data front, Reuters reported consumers prices in the euro zone increased by slightly more than initially forecast in June, data showed on Wednesday, although headline and underlying inflation rates were still below the improvement that policymakers are seeking.   
  
The British pound went through a roller-coaster ride. Although cable extended its recent losing streak and fell below previous day's 1.2396 low to a fresh 27-month trough of 1.2382 at European open on continued market woes over no-deal Brexit, price erased its losses and rallied to session highs at 1.2456 in New York due to broad-based weakness in the usd, price later retreated and moved narrowly in New York afternoon.  
  
Reuters reported earlier in NY afternoon Boris Johnson, favourite to be the next British Prime minister, declined to comment on a report that he was exploring a plan that could allow him to push through a no-deal Brexit but said he didn't disagree it could be convenient for him.  Johnson is considering the plan for a Queen's Speech, where a prime minister lays out their policy programme in November, Sky News reported on Tuesday. That means lawmakers would be sent home two weeks earlier, hindering their ability to stop Britain leaving the EU without a deal.    
"I'm not going to comment on our programme," Johnson said, asked at a hustings event when he would introduce a Queen's Speech.  Asked about the convenience of a November Queen's Speech, Johnson said, "I'm not going to dissent from you. That seems like a reasonable point."  
  
Data to be released on Thursday :  
  
Japan imports, exports, trade balance, Australia employment change, unemployment rate, Swiss imports, exports, trade balance, UK retail sales, core retail sales, and U.S. jobless claims, Philadelphia Fed manufacturing index, leading indicator.