USD Softens, Traders Focus on CPI Readings
After two weeks of stretching gains versus major and exotic currencies, the USD pulled back, softening and making commodities—priced in the U.S. dollar, more attractive for investors. At the same time, Treasury bond yields temporarily fell, dragging the greenback with it but allowing the CAD, JPY, and GBP to recover after losses.
Investors are closely watching how politics pan out this week with a specific focus on the House. If they approve the $1.9 trillion stimulus package giving President Biden an early victory and catalyzing hopes of a faster economic recovery in 2021, the USD rally would likely continue. Further tailwinds will be provided by this week's consumer price index (CPI) reading. Assuming it surpasses expectations, the USD could build on last week's solid labor readings in a bull trend continuation pattern.
Impact on the USD:
Bullish. Even though the greenback is soft, it remains at multi-month highs versus major currencies on the back of rising Treasury yields, upbeat macroeconomic data, and expectations of a more robust U.S. economic recovery. The USD could continue with its march higher in the medium term, especially against the CHF, JPY, and Euro, as more speculative USD short beats are rolled back.
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