Forex Today: US data keeps the Dollar at monthly highs

The Reserve Bank of New Zealand will announce its decision on monetary policy. The UK inflation report is due. The Eurozone will release GDP, employment, and industrial production data. Later in the day, the Fed will release its meeting minutes.

Here is what you need to know on Wednesday, August 16:

The US Dollar Index remains strong. On Tuesday, it posted its fourth consecutive daily gain and reached the highest level in a month. The DXY managed to recover from losses, supported by a rebound in Treasury yields and increased risk aversion. Stocks on Wall Street, on average, lost more than 1%. The US 10-year Treasury yield initially dropped to 4.16% and then climbed back above 4.20%, while the 2-year yield rose from 4.90% to 4.95%.

The US Retail Sales exceeded expectations, rising by 0.7% in July, surpassing the market consensus of 0.2%. However, the NY Empire Manufacturing Index dropped to -19 from -1. On Wednesday, economic indicators such as Building Permits, Housing Starts, and Industrial Production will be released. Nevertheless, the key event to watch will be the release of the FOMC meeting minutes.

EUR/USD reached a peak at 1.0950 before retracing to 1.0900, driven by a rebound in the US Dollar. In the Eurozone, GDP, Employment, and Industrial Production data will be released on Wednesday.

The UK released stronger-than-expected wage data, boosting expectations of another rate hike from the Bank of England (BoE) and bolstering the Pound. The currency outperformed on Tuesday, with GBP/USD rising steadily and ending the day above 1.2700. On Wednesday, the UK will release the July Consumer Price Index (CPI) inflation report, which will be closely watched. The CPI is expected to decline from an annual rate of 7.9% in June to 6.7% in July.

USD/JPY remained flat, hovering around 145.50 after testing the downside near 146.00 and finding support above 145.00.

The Consumer Price Index rebounded in July in Canada to 3.3%, surpassing the expected 3%. The Canadian Dollar gained momentum briefly after the data. USD/CAD continued its upward trend and closed slightly below 1.3500, the highest level in more than two months.

Analysts at RBC:

We look for a softening economy to ease inflation pressures further going forward, and expect the odds are still tilted towards the Bank of Canada foregoing another increase in the overnight rate in September. 

The Russian Ruble stabilized after the USD/RUB pulled back from above 100.00. The Central Bank of Russia (CBR) raised interest rates by 350 basis points to 12% after an extraordinary monetary policy meeting.

The Antipodean currencies remain under pressure as Chinese data continues to disappoint, and commodity prices remain weak. NZD/USD dropped for the sixth consecutive day, closing below 0.6000. The Reserve Bank of New Zealand will announce its monetary policy on Wednesday, and no change is expected. Similarly, AUD/USD also lost ground and was trading slightly above the key support area of 0.6450.

---