Forex today: Greenback surges on short-covering following less dovish that expected Fed speak

  • Short-covering in the greenback sees space back on the 96 handle in the DXY.
  • US 2 year treasury yields jumped from 1.70% to 1.76%.

FX overnight was friendly for the Dollar that witnessed short covering across the board as the Fed officials dampened down the rate cut hysteria with various comments throughout the New York session. The DXY started the day at 95.84 and ended on the 96 handle, albeit somewhat off its highest point for the session at 96.36.

The Dollar was making a come back following Bullard's suggestion that a 50bp cut would be too much in July, albeit advocating for a 25bp cut. Then, Fed's chair Powell speaking in New York reiterated last week’s FOMC view that the case for lower rates had strengthened but argued that “monetary policy should not overreact to any individual data point or short-term swing in sentiment.” Following the speech, in a Q&A session, Powell was highlighting trade worries ahead of the G20 get together between Trump and Xi on the sidelines of this weekend's G20. Fed president Barkin said the Fed is ready to move if needed. Subsequently, the 10-year yield dropped 1.98% while US 2 year treasury yields jumped from 1.70% to 1.76% on the Bullard/Powell comments, ending down at 1.73% as markets settled for rate cuts nonetheless - All in all, markets were pricing in a 33bp of easing at the July meeting, slightly lower than yesterday's 36bp for a total of four cuts priced by mid-2020.

On data, the Consumer Confidence reading fell sharply in June following a downward revision of May data as trade tensions take their toll. "The index which measures the current situation fell to its lowest level in 12 months, while the forward-looking index was at its lowest level since January. New home sales data for May was also disappointing with lower interest rates having no impact. Home sales fell 7.8% in May following a 3.7% fall in April," analysts at ANZ bank explained.

Analysts at Westpac offered a breakdown of action overnight in the currencies in focus for today's Asian session as follows:

  • EUR/USD fell from 1.1410 to 1.1344 on Powell. 
  • USD/JPY rose from 106.80 to 107.40, recovering some ground lost as equity markets remained under pressure. 
  • AUD/USD is little changed at 0.6960, after initially extending a week-old rally to 0.6968, and then falling to 0.6942 on the Fed comments before edging back up. 
  • Outperformer NZD extended its week-old rally, from 0.6640 to 0.6661 then back to 0.6640. 
  • AUD/NZD continued to probe the downside, to 1.0462 – the lowest since 3 April.

Key notes from Wall Street:

Wall Street's wings clipped on Fed rate-cut-enthusiasm dampener

Key events ahead:

The RBNZ announces its monetary policy decision at 12pm Syd/10am Sing/HK.

"Kiwi’s meteoric rise continues while the USD remains under pressure. Hopes of renewed negotiations between the US and China boosts sentiment whilst markets now turn their attention to the RBNZ’s OCR Review,"

analysts at ANZ Bank explained. 

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