Forex Today: Dollar stays on the backfoot following Tuesday's selloff

Eren Sengezer FXStreet

Here is what you need to know on Wednesday, October 26:

Following the disappointing macroeconomic data releases from the US on Tuesday, the greenback came under heavy selling pressure and the US Dollar Index (DXY) lost more than 1%. The DXY is struggling to stage a rebound early Wednesday and stays below 111.00 despite the risk-averse market mood as reflected by falling US stock index futures. September Goods Trade Balance and New Home Sales data will be featured in the US economic docket later in the day. More importantly, the Bank of Canada (BoC) will announce its monetary policy decisions.

On Tuesday, the US data revealed that home prices continued to decline at an accelerating pace in August. Moreover, the Conference Board's Consumer Confidence Index declined to 102.5 in October from 107.8 in September, missing the market expectation of 105.9. According to the CME Group FedWatch Tool, the probability of a 50 basis points rate (bps) hike in December after a 75 bps hike in November climbed to 50% from only 22% last week. Consequently, the benchmark 10-year US Treasury bond yield lost more than 3% on the day.

The BoC is expected to raise its policy rate by 75 bps to 4% from 3.25%. Previewing the event, "it seems unlikely that the bank will decide to shift gears and slow down the pace of tightening, as it remains committed to raising rates until inflation is brought under control. In case it does, the crucial details could be outlined in the MPR accompanying the rate decision," said FXStreet Analyst Dhwani Mehta. USD/CAD was last seen trading at its lowest level in three weeks below 1.3600.

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During the Asian trading hours, the data from Australia showed that the Consumer Price Index (CPI) climbed to 7.3% on a yearly basis in the third quarter from 6.1% in the second quarter. Fueled by hot inflation data and the broad dollar weakness, AUD/USD gathered bullish momentum and was last seen rising 0.5% on the day at 0.6430.

USD/JPY lost nearly 100 pips on Tuesday and closed below 149.00 following Monday's volatile action. The pair stays relatively quiet at around 147.80 in the early European session mid-week.

GBP/USD took advantage of the dollar selloff and climbed to 1.1500 for the first time since mid-September late Tuesday before going into a consolidation phase below that level.

EUR/USD gained traction during the American trading hours on Tuesday and gained nearly 100 pips on the day. The pair continues to edge higher toward the key parity level in the European morning.

Gold capitalized on falling US Treasury bond yields and staged a decisive rebound late Tuesday. XAU/USD preserves its bullish momentum on Wednesday and trades above $1,660.

Bitcoin benefited from risk flows and climbed above the key $20,000 level after having spent the last couple of weeks below it. Similarly, Ethereum gained nearly 9% on Tuesday and extended its rally toward $1,500 early Wednesday.

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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