The dollar fell on Tuesday as robust U.S. economic data and hawkish comments from Fed Chair Jerome Powell nW1N2UD02B failed to offset the reversal of safe-haven trades triggered by hopes that China's COVID lockdowns could be relaxed nL3N2X91HL.
Hawkish ECB comments nL5N2X9343 and stellar UK employment data nL5N2X91BH put further pressure on the dollar, which was joined by the yen in the unwanted among suddenly unpopular haven currencies.
EUR/USD's roughly 1% advance was shepherded by a nearly 20bp rise in ECB rate-hike pricing from Friday's low to Tuesday's high after ECB official Klaas Knot said the central bank shouldn't rule out a 50 basis point rate hike in July.
Though a 25bp move in July remains favored, the market's pricing in over 100bp of ECB rate hikes by year-end and a terminal rate above 1.5%.
The fed funds terminal rate increased to 3.2%, but remains below recent peaks.
U.S.
retail sales and industrial production nL2N2X911Z showed the economy doing well in handling inflation at 40-year highs, sending Treasury yields higher by 10-12bp, flattening the curve.
Powell's comments reinforced existing rate hike expectations nW1N2UD02B with limited added support for the dollar.
The dollar's data-inspired bounce stalled after the rates-sensitive NAHB home-builders' index hit its lowest since June 2020 nN9N2TD02B.
EUR/USD's recovery from Friday's failed attempt to break 2017's 1.0340 low on EBS has benefited from unwinding of oversold pressures and prior risk-aversion dollar gains but faces stiff resistance around 1.0636-42 from 2020's lows, May's high and the daily kijun nL2N2X91C3.
Sterling rose 1.1%, after surprisingly strong UK employment data nL5N2X91BH boosted 2-year gilt yields almost 22bp on faster BoE rate hike expectations nL2N2X91BM.
Cable hit 1.2498, near the pivotal 1.2500 level and highest since May 5's post-FOMC and BoE meeting breakdown session.
USD/JPY was up 0.2% as the yen's haven status in a risk-on session left it vulnerable to rebounding Treasury-JGB yields, and was capped at 129.78 by the 200-hour moving average and the weak NAHB nL2N2X91KL.
Aussie gained 0.6% after bigger gains following RBA minutes that showed consideration for an even bigger rate hike at the last meeting and on hopes China's sharp slowdown will improve as COVID lockdowns are reduced.
USD/CNH fell 0.7% to its lowest in five sessions on lockdown-end hopes and government efforts to bolster growth.
Bitcoin and ether managed modest gains after huge losses in April and thus far in May, with BoE Deputy Governor Jon Cunliffe Tuesday warning about risky crypto currencies nL9N2VE01D.
The U.S. data calendar is light on first-tier releases Wednesday, so UK inflation might be the best watched.
For more click on FXBUZ