Dollar Retreats with Treasury Yields; Traders Await Central Bank Decisions

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Dollar Retreats with Treasury Yields; Traders Await Central Bank Decisions

JUNE 09, 2021

The U.S. dollar is down modestly against all its G10 counterparts to start the day.

Overview

Outside of the G10, the Mexican peso has risen to its strongest level against the U.S. dollar in five months. While the greenback gained to start the week, global markets, in general, have been fairly quiet.  The 10-year Treasury yield fell back below 1.5% for the first time since early May, but equities markets have only shrugged.

With the economic docket remaining light today, the focus appears to be on tomorrow’s inflation report.  The Consumer price index is due out at 8:30 a.m. tomorrow and could spark volatility that has been lacking in the currency markets this month.  Economists expect that prices climbed 4.7% in May from a year earlier.  That would be the quickest pace since 2008.  It is important to note that the number will appear high due to the “base effect” since the yearly number will include the beginning of the pandemic.  Regardless, traders will use the inflation print to start predicting when the Federal Reserve will start tapering its bond-buying program.

What to Watch Today…

  • Bank of Canada at 10 a.m.

View Economic Calendar

EUR  

The Euro is trading two-tenths of a percent stronger this morning, but mostly on widespread U.S. dollar weakness.  Continuing with the theme of looking ahead to tomorrow, traders are awaiting tomorrow’s European Central Bank monetary policy meeting.  The ECB is not expected to change their current policy, so the market-moving event could be ECB chief Christine Lagarde’s press conference following the announcement.  Market participants will look for signs that the ECB is looking ahead to scale back some of their stimulus measures as the European economy starts to reopen.  We do not believe Lagarde or the ECB will change their tone tomorrow, disappointing some and possibly giving the Euro a modest boost.

CAD 

The Canadian dollar is up against its American rival this morning and is within striking distance of its best level since 2015.  The relatively hawkish Bank of Canada will release its monetary policy decision this morning at 10 a.m.  The BoC was one of the first central banks of a major economy to reduce the monetary stimulus it injected following the onset of the pandemic.  While no major changes are expected today, traders will be looking for clues for further policy tweaks in the months to come.  We expect a second “taper” to be announced next month, which would be a positive development for the loonie.

The loonie is also seeing support as the price of oil ticks slightly higher.

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