Worries over a further acceleration in global inflation depressed investors

• The U.S. dollar strengthened across the board yesterday as Treasury yields climbed
• Fed Governor Christopher Waller said the Fed should be prepared to raise interest rates
• Euro remained weak as data showed eurozone inflation hit a record high in May

Forex market 

U.S dollar strengthened across the board yesterday as Treasury yields climbed and worries over a further acceleration in global inflation depressed investors' risk appetite. The dollar was supported by demand for safe-havens. 

U.S stocks fell yesterday as soaring oil prices and hawkish comments from a U.S Federal Reserve official spooked investors. U.S Treasury yields climbed on Tuesday, a day after Fed Governor Christopher Waller said the Fed should be prepared to raise interest rates by a half percentage point at every meeting from now on until inflation is decisively curbed. 

The U.S Dollar Currency Index, which tracks the greenback against six other major currencies, was up 0.3% at 101.76, on pace for its best one-day gain in nearly two weeks. The dollar index, up about 6.4% for the year, is down 1.4% for May, on pace for its worst monthly loss in a year. President Joe Biden told Fed Chair Jerome Powell on Tuesday that he will give the central bank the space and independence to address inflation as it sees fit, according to a top aide. 

Economic Calendar

Yesterday's bounce in the U.S dollar suggests better support for the dollar index around its 50-day moving average, which the index has been testing over the past couple of sessions. For now, the euro remained weak as data yesterday showed eurozone inflation hit a record high in May, adding pressure on the European Central Bank as it fends off a recession and looks to curb high prices with gradual interest rate increases in coming months.

Inflation in the 19 countries sharing the euro accelerated to 8.1% in May from 7.4% in April, beating expectations for 7.7% as price growth continued to broaden, indicating that it is no longer just energy pulling up the headline figure.

Euro-EUR

The single currency gave back some of its recent gains yesterday but was still set for its best month in a year as markets reposition in anticipation of interest rate increases in Europe and the possibility of a slower pace of U.S rate hikes. German inflation rose to its highest level in nearly half a century in May on the back of soaring energy and food prices. Overall, the EUR/USD traded with a low of 1.0469 and a high of 1.0563 before closing the day around 1.0497 in the New York session.

Japanese Yen-JPY

The Japanese Yen fell to a two-week low versus the U.S Dollar following higher Treasury yields as global inflation worries flared anew. The dollar index, which measures the currency against six major peers, including Japan's, rose 0.19% to 101.94, extending a 0.38% rally yesterday when data showed euro-area consumer inflation soaring to a record. Overall, the USD/JPY traded with a low of 128.32 and a high of 131.23 before closing the day around 130.82 in the U.S session.

British Pound-GBP

The British Pound fell against the Dollar but remained on track for its first monthly gain of 2022 even as Britain's murky growth outlook continued to weigh on sentiment. Despite the weakness, the sterling remains well off its mid-May lows when it touched its lowest level since March 2020. Sterling regained ground on the back of a strong labor market and CPI data. Overall, the GBP/USD traded with a low of 1.2409 and a high of 1.2568 before closing the day at 1.2455 in the New York session.

Canadian Dollar-CAD

The Canadian Dollar strengthened to its highest level in nearly six weeks against the greenback, boosted by recent strength in oil prices and domestic data that showed the economy had momentum heading into the second quarter. Canada's economy was not as robust as expected in the first quarter, growing at an annualized rate of 3.1%. Overall, USD/CAD traded with a low of 1.2788 and a high of 1.2877 before closing the day at 1.2805 in the New York session.

Australian Dollar-AUD

The Australian Dollar had a muted reaction to China’s PMI numbers after domestic building approvals data surprised to the downside. Chinese manufacturing PMI for May printed at 49.6 against 49.0 anticipated and the non-manufacturing came in at 47.8 instead of the 45.5 forecasts. Australian building approvals sunk -by 2.4% month-on-month in April. Overall, AUD/USD traded with a low of 0.6826 and a high of 0.6951 before closing the day at 0.6853 in the New York session.

Euro-Yen EUR/JPY

EUR/JPY is trading below 14, 50 and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also issuing a bearish stance. The Relative Strength Index is above 35 and lies below the neutral zone. In general, the pair has gained 1.25%.

Sterling-Yen GBP/JPY

Currently, GBP/JPY is trading below 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 33 reading and lies below the neutral zone. On the whole, the pair has gained 1.16%.

Aussie-Yen AUD/JPY

Currently, the cross is trading above 14, 50 and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 36 reading and lies below the neutral region. In general, the pair has gained 1.45%.

Euro-Sterling EUR/GBP

This cross is currently trading above 14, 50 and below 100 days moving average. Fast stochastic is indicating a bullish tone and MACD is also issuing a bullish signal. The Relative Strength Index is above 58 and lies above the neutral region. Overall, the pair has gained 0.12%.

Sterling-Swiss GBP/CHF 

This cross is trading below 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish stance and MACD is also indicating a bearish tone. The Relative Strength Index is above 50 and lies below the neutral region. In general, the pair has lost 0.42%.

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