Dollar retreats modestly, investors move to sidelines ahead of key events

The positive shift witnessed in market sentiment made it difficult for the dollar to preserve its strength at the start of the week but the currency’s losses against its major rivals remained relatively limited ahead of key central bank events. IHS Markit’s final revision to October Manufacturing PMI for the euro area and Germany will be featured in the European docket ahead of the IBD/TIPP Economic Optimism data from the US. With European investors returning on Tuesday, investors will keep a close eye on the short-term bond yields and the flattening of the yield curves in major economies.

Wall Street: The S&P 500 and the Dow Jones Industrial Average Indexes posted new all-time highs on Monday fueled by surging energy stocks. However, the Shanghai Composite and the Nikkei 225 indexes are down 0.7% and 0.5%, respectively, while the US stock index futures are falling between 0.2% and 0.3%, suggesting that the mood is turning cautious.

The benchmark 10-year US Treasury bond yield stays in a consolidation phase above 1.5% after posting small losses on Monday.

Macro events: The data from the US showed on Monday that the business activity in the manufacturing sector continued to expand at a robust pace in October. However, the Prices Paid component of the ISM’s PMI survey jumped to 85.7 from 81.2 in September, revealing that input price pressures continued to increase.

The Reserve Bank of Australia (RBA) left its policy rate unchanged as expected but decided to discontinue the target of 10 basis points for the April 2024 Australian Government bond. Commenting on the policy outlook, RBA Governor Phillip Lowe said market pricing for early rate hikes was extremely unlikely.

The Bank of Japan’s (BoJ) Monetary Policy Meeting Minutes didn’t offer any surprises. Many policymakers said pent-up demand was yet to materialise in Japan. Nevertheless, the risk-averse market environment is helping the JPY stay resilient against its rivals and USD/JPY was last seen trading in the red around 113.70.

EUR/USD managed to stage a technical correction on Monday and seems to have gone into a consolidation phase around 1.1600 on Tuesday.

GBP/USD remains on the back foot despite the fact that French President Emmanuel Macron announced that he postponed planned sanctions on the UK to give more time to negotiators from both sides to work on new proposals on fishing arrangements. The pair is currently trading around 1.3650.

AUD/USD lost nearly 30 pips with the initial reaction to the RBA’s policy announcements and extended its slide toward the end of the Asian session. As of writing, the pair was down 0.6% on the day at 0.7478.

Gold ended the first trading day of the week in the positive territory but buyers might want to wait for a break above $1,800 before committing to further upside.

Cryptocurrencies: Bitcoin continues to fluctuate in a relatively tight range above $60,000. Ethereum edges higher toward $4,400 after staging a technical correction.

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