Forex Today: Dollar selloff pauses amid rising US yields

Eren Sengezer FXStreet

Here is what you need to know on Wednesday, May 18:

The greenback seems to have found its footing early Wednesday amid rising US Treasury bond yields. The US Dollar Index, which closed the previous three days in negative territory and lost more than 1% during that period, is moving sideways above 103.00 early. The benchmark 10-year US Treasury bond yield is moving sideways within a touching distance of 3% following a 4% increase on Tuesday. Eurostat will release the inflation (final) data for April. Later in the session, Consumer Price Index from Canada and Housing Starts from the US will be featured in the North American docket.

The risk-positive market environment made it difficult for the dollar to find demand on Tuesday. The S&P 500 Index gained more than 2% as the data from the US revealed that Retail Sales in April rose by 0.9%, compared to the market expectation of 0.7%. Additionally, investors cheered news of the city of Shanghai recording no new coronavirus cases across all districts.

Earlier in the day, citing three sources familiar with the matter, Reuters reported Shanghai city’s authorities issued a new white list containing 864 financial institutions allowed to resume work. Nevertheless, US stock index futures trade flat heading into the European session. Speaking at an event organized by the Wall Street Journal, FOMC Chairman Jerome Powell reiterated that they will not hesitate if they see the need to move the rate beyond neutral and added that there was broad support among policymakers for 50 basis points rate hikes at the next two policy meetings.

EUR/USD gained more than 100 pips on Tuesday before going into a consolidation phase early Wednesday. European Central Bank (ECB) policymaker Klaas Knot said that a 50 basis points rate hike should not be excluded if data in the next few months suggest that inflation is broadening and accumulating, providing a boost to the euro.

GBP/USD stays relatively calm below 1.2500 early Wednesday following this week's decisive rebound. The data published by the UK's Office for National Statistics revealed earlier in the session that inflation in the UK, as measured by the Consumer Price Index (CPI) jumped to 9% on a yearly basis in April. The Core CPI, which excludes volatile food and energy prices, climbed to 6.2% from 5.7% in March as expected.

Gold extended its rebound and rose above $1,830 on Tuesday but reversed its direction with rising US Treasury bond yields not allowing the yellow metal to continue to find demand. XAU/USD trades in negative territory near $1,810 in the European morning.

USD/JPY moves sideways above 129.00 for the third straight day on Wednesday. The pair managed to hold its ground despite the broad dollar weakness as the Japanese yen struggled to attract investors in the risk-positive market environment.

Bitcoin registered modest daily gains on Tuesday but failed to gather bullish momentum. As of writing, BTC/USD was down nearly 2% on the day at $29,900. Ethereum is down 2.5% on the day and trades near $2,000 following Tuesday's recovery attempt.

Author

Eren Sengezer

FXStreet

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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