Forex Today: US Dollar weakens despite Middle East concerns

Eyes remain on the Middle East. During the Asian session, the Australian Westpac Consumer Confidence Index and the NAB Business Conditions survey are due. The key report of the week will be the US CPI on Thursday.

Here is what you need to know on Tuesday, October 10:

The US Dollar Index experienced a modest decline near the 106.00 level on Monday, after trading mostly in positive territory throughout the day. The DXY initially started the week on a positive note due to developments in the Middle East that impacted market sentiment. However, the Greenback lost momentum later in the day as the market stabilized and US yields continued to decline.

On Tuesday, no top-tier reports from the US are scheduled for release. The focus for the week in terms of economic data will be on inflation figures, with the Producer Price Index (PPI) on Wednesday and the Consumer Price Index (CPI) on Thursday.

Analysts at ANZ on US CPI: 

The outsized payroll number raises the prospect the Fed may hike again, but it’s not a clincher. September Consumer Price Index data out this week should be more revealing. We expect core inflation to rise by 0.2% m/m, which should be well received by the Fed. 

The situation in the Middle East has the potential to impact markets, with further escalation possibly damaging market sentiment and increasing demand for safe haven currencies and crude oil prices. The unfolding events could become a "Black Swan" event that significantly alters the outlook.

The Japanese Yen was among the best-performing currencies, supported by the decline in global bond yields. German 10-year yields dropped by almost 5% to 2.76%. USD/JPY declined from below 149.00 to 148.35.

EUR/USD trimmed its losses during the American session, rising above 1.0560. The pair maintains a modest bullish bias in the short term but remains limited below 1.0600. The Euro underperformed on Monday and was the weakest among G10 currencies. German Industrial Production dropped 0.2% in August, and Eurozone Sentix Investor Confidence declined to -21.9, against an expected -24.

GBP/USD finished flat consolidating around the 1.2240 area, supported by some weakness in the US Dollar. The pair remains below but near the 20-day Simple Moving Average (SMA) at 1.2270.

AUD/USD gained momentum late on Monday, rising above the 20-day SMA and surpassing 0.6400. On Tuesday, the Westpac Consumer Confidence for October and the National Australian Bank's Business survey are scheduled.

The rally in crude oil prices boosted the Canadian Dollar. USD/CAD dropped for the third day in a row, reaching a one-week low below 1.3600.

NZD/USD registered its highest daily close in almost two months, above 0.6000. The weaker US Dollar and improved risk sentiment supported the pair's strength on Monday.