The dollar index experienced a 0.1% decline as the rebound following last week's significant drop, which marked its largest decline of the year, started to fade. Investors are now awaiting the
US retail sales data on Tuesday, which will determine whether the recent selloff driven by disinflation concerns will resume.
While the dollar had been undermined by data indicating enough disinflation to increase expectations of swift easing by the Federal Reserve in 2024, following just one more rate hike this month, it had become extremely oversold against the euro, yen, pound, and most other currencies last week.
A period of consolidation or correction was due, especially after the July Michigan consumer sentiment showed a surprising increase above forecasts, suggesting that the economy is handling the Fed's 500 basis points of rate hikes better than anticipated.
The New York Fed's Empire Index for July, which was released, performed better than expected, particularly in terms of employment and new orders. However, it is a second-tier report that only influenced Treasury yields and the dollar's support.
Concerns over China's GDP, housing, and property developer data, which were released earlier, weighed on the yuan and Australian dollar, causing them to fall by 0.3% and 0.24%, respectively.
Additionally, worries about China's demand and a warning from the Bundesbank regarding Germany's recovery, which may be weaker than already pessimistic expectations, initially weighed on eurozone yields, EUR/USD, and high beta, commodity-linked currencies.
EUR/USD saw a 0.1% increase after experiencing a decline from Monday's minor new trend high at 1.1249 to Friday's low of 1.12045 on EBS before recovering towards the day's highs.
The euro has managed to hold its significant gains in July relatively well, despite reports last week of a 2.9% year-on-year and 0.2% month-on-month decline in German wholesale prices, as well as unexpected export declines in May. This is noteworthy, particularly given the 38 basis points more negative spread between 2-year bund and Treasury yields compared to April's highs.
USD/JPY's recovery was once again limited by the uptrend line from March, which was breached last week. However, Monday's trading range marked the first with a higher low and high since the June 30 trend high at 145.07. Key obstacles lie above the trendline at 141 and 142.
Sterling experienced a 0.1% decline ahead of the US retail sales data, as well as UK CPI data on Tuesday and Wednesday. Photo by Rdsmith4, Wikimedia commons.