Forex Today: Dollar stays on the back foot as risk flows return

Here is what you need to know on Tuesday, June 21:

The US Dollar Index continues to push lower toward 104.00 early Tuesday after having closed the first day of the week in negative territory. The market mood improves in the European morning with the US stock index futures rising more than 1% following the long weekend. Cleveland Fed President Loretta Mester and Richmond Fed President Thomas Barkin are scheduled to speak later in the day. FOMC Chairman Jerome Powell's prepared remarks to be delivered at the semi-annual testimony on Wednesday are expected to be released as well.

The trading action remained subdued throughout the day on Monday. While testifying before the European Parliament, European Central Bank President Christine Lagarde said a recession in the eurozone was not their baseline scenario and reiterated that they intend to raise key rates by 25 basis points (bps) in July. Meanwhile, US President Joe Biden said they could decide whether to pause the federal gasoline tax by the end of the week.

During the Asian trading hours, Reserve Bank of Australia Governor Philip Lowe said that Australians should be prepared for more interest rate hikes. Lowe added that they will discuss whether they should raise the policy rate by either 25 or 50 bps at the July meeting. AUD/USD gained traction on Tuesday and climbed toward 0.7000. 

USD/CAD closed in negative territory and extended its slide toward 1.2900 early Tuesday. Later in the session, Statistics Canada is expected to report that Retail Sales in Canada rose by 0.8% in April after having stayed unchanged in March.

Despite the broad dollar weakness, USD/JPY manages to hold above 135.00. Japanese Prime Minister Fumio Kishida argued earlier in the day that they should not tweak the monetary policy now.

EUR/USD gathered bullish momentum and climbed toward 1.0550. "There is no preview beyond September of what will be the appropriate pace for tightening," ECB Chief Economist Philip Lane said earlier in the day but these comments don't seem to be having an impact on the shared currency's performance against its rivals.

Bank of England policymaker Catherine Mann argued on Monday that a 50 bps rate increase could reduce the risk of domestic inflation being boosted by weaker sterling. GBP/USD regained its traction and was last seen trading within a touching distance of 1.2300.

Gold is edging lower toward $1,830 on Tuesday. The benchmark 10-year US Treasury bond yield is up more than 0.5%, making it difficult for XAU/USD to capitalize on the dollar weakness.

Bitcoin extends its recovery and trades above $21,000 following the sharp decline witnessed over the weekend. Ethereum is up more than 2% at $1,150 after having ended the day flat on Monday.