Forex Today – Asian Session: USD extends decline as sentiment improves

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What to watch for on Wednesday, May 18:

The US dollar fell across the board as the currency extended the bearish corrective slide that started on Monday. Encouraging data from the US helped improve market sentiment, with global indices closing higher.

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However, the concerns remain the same. Tensions between Europe and Russia continued after the latter invaded Ukraine. Russian Deputy Foreign Minister Andrey Rudenko was making remarks, saying that Ukraine has practically withdrawn from the negotiations.

Federal Reserve Chairman Jerome Powell gave a speech. Powell did not surprise investors, repeating that the central bank is comfortable with rate hikes of 50 basis points. He also mentioned that they could speed up or slow down the pace of hikes depending on economic health. In this regard, Powell added that the underlying strength of the US economy is really good at the moment. US indices fell from their highs after his words, but remained higher.

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The EUR/USD pair rose as high as 1.0555, helped by ECB Governing Council member Klaas Knot who said a 50 basis point rate hike should not be ruled out if data suggests inflation continues to widen and accumulate. He also added that a hike of 25 basis points in July would be realistic.

GBP/USD hit 1.2498 and ended the day close, with the pound underpinned by a stronger-than-expected UK employment report. The ILO jobless rate contracted to 3.7% in the three months to March, while the change in claimant count for April fell to 56,900. Market participants ignored the rising Brexit tensions. Foreign Secretary Liz Truss informed the House of Commons of the Government’s intention to table legislation to introduce changes to the Northern Ireland Protocol. The government would prefer a negotiated solution with the EU, but will work to change the protocol anyway.

The AUD/USD pair is trading above the 0.7000 threshold, while the USD/CAD continues its decline and is trading near the 1.2800 level. Outperforming equities underpinned commodity-linked currencies, despite falling gold and oil prices. The yellow metal settled at $1,816 a troy ounce, while WTI traded at $109 a barrel.

The USD/JPY pair ended the day little changed at 129.35, while the USD/CHF fell to 0.9938.

US Treasury yields rose, with the 10-year yield flirting with the 3% level.

Source: Fx Street

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