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Forex Today: Dollar recovery loses steam ahead of key data releases

Here is what you need to know on Wednesday, August 3:

The US Dollar Index (DXY) snapped a four-day losing streak on Tuesday as escalating geopolitical tensions allowed safe-haven flows to continue to dominate the financial markets. There seems to be a modest improvement in risk mood early Wednesday with US stock index futures rising between 0.2% and 0.3% and the DXY consolidating its recovery gains above 106.00. The European economic docket will feature June Retail Sales data before the ISM releases the July Services PMI report for the US later in the day. Investors will keep a close eye on political developments and Fedspeak as well.

Despite China's stern warnings, US House of Representatives Speaker Nancy Pelosi has landed in Taiwan, becoming the most senior US politician to visit the country in 25 years. With the initial response, the Chinese Foreign Ministry published a statement, noting that Pelosi's visit seriously violated the sovereignty and territorial integrity. Additionally, China announced that it will hold military exercises, including live-fire drills, in areas surrounding Taiwan from August 4. Earlier in the day, "we want Taiwan to always have freedom with security, we are not backing away from that," Pelosi told a news conference.

In the meantime, Chicago Fed President Charles Evans said on Tuesday that a 50 basis points rate hike would be a reasonable assessment for the September policy meeting if inflation does not improve. These comments helped the US T-bond yields push higher and the benchmark 10-year US yield rose more than 6% on a daily basis and climbed above 2.7% on Tuesday before going into a consolidation phase early Wednesday. 

In the early Asian session, the data from New Zealand showed that the Unemployment Rate edged higher to 3.3% in the second quarter from 3.2% in the first quarter. The Participation Rate was virtually unchanged at 70.8% in the same period. NZD/USD declined toward 0.6200 with the initial reaction but recovered above 0.6250 heading into the European session.

EUR/USD pair lost more than 100 on Tuesday and closed the day below 1.0200. The pair is having a difficult time gaining traction in the European morning and fluctuating in a tight range above 1.0150.

GBP/USD fell sharply on Tuesday as the British pound failed to find demand in the risk-averse market atmosphere. The pair stays relatively quiet above mid-1.2100s early Wednesday. The S&P Global will release the final version of the Services and Composite PMı data for the UK later in the session.

Fueled by surging US Treasury bond yields, USD/JPY rose decisively from the two-month low it set at 130.43 and gained nearly 200 pips on the day. The pair fluctuates in a narrow channel above 133.00 on Wednesday.

Gold turned south on rising US yields and the broad-based dollar strength on Tuesday and close in negative territory for the first time since last Wednesday. Nevertheless, XAU/USD seems to have regathered its bullish momentum and was last seen advancing toward $1,770.

Bitcoin continues to move sideways near $23,000 and Ethereum is struggling to find direction while holding steady above $1,600.

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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