US Dollar Further Declines As Sentiment Improves

The US dollar edged lower across the board as the American currency extended the bearish corrective decline that began on Monday. Positive US data has helped the case for a better market sentiment, with global indexes closing in the green.

The underlying concerns remain the same. Tensions between Europe and Russia continued after the latter invaded Ukraine. Russian Deputy Foreign Minister Andrey Rudenko said that Ukraine has practically withdrawn from negotiations.

Federal Reserve chair Jerome Powell offered a speech. Powell failed to surprise investors, repeating that the central bank is comfortable with 50 bps rate hikes. He also mentioned that they could speed up or slow down the pace of hikes accordingly to the economic health. Speaking of which, Powell added that the underlying strength of the US economy is really good at the time being. US indexes retreated from their highs with his words but retained the green territory.

The EUR/USD pair surged to 1.0555, helped by ECB’s Governing Council member Klaas Knot, who said that a 50 bps rate hike should not be excluded if data suggest inflation keeps broadening and accumulating. He also added that a 25 bps hike in July would be realistic.

GBP/USD hit 1.2498 and finished the day nearby, with the pound underpinned by a stronger-than-expected UK jobs report. The ILO unemployment rate contracted to 3.7% in the three months to March, while the April Claimant Count Change fell to -56.9K. Market participants ignored mounting Brexit tensions. Foreign Secretary Liz Truss updated the House of Commons on the government’s intention to introduce legislation to make changes to the Northern Ireland Protocol. The government would prefer a negotiated solution with the EU but will anyway work on changing the protocol.

The AUD/USD pair trades above the 0.7000 threshold, while the USD/CAD extended its slump and trades near the 1.2800 level. The better performance of equities underpinned commodity-linked currencies, despite softening gold and oil prices. The bright metal settled at $1,816 a troy ounce, while WTI is now changing hands at $109 per barrel.

The USD/JPY pair ended the day little changed at 129.35, while USD/CHF fell to 0.9938. US Treasury yields ticked higher, with that on the 10-year note flirting with 3%.