The dollar fell Wednesday as fears of Fed tightening and higher Treasury yields faded with the help of Chair Jerome Powell's dovish congressional testimony nW1N2MT056nW1N2B800E, which diminished concerns that rebounding inflation could force the U.S. central bank to accelerate policy normalization.
The dollar index's high Wednesday was rejected just shy of last week's 92.844 peak nL1N2OQ1XL as Treasury yields fell faster than Bund, JGB and gilt yields, despite U.S. PPI coming in far above forecast nAPN072LGP, similar to Tuesday's CPI nAPN072H2D.
EUR/USD gained 0.45% after earlier retesting Tuesday's 1.1772 trend low by important support from a pending head-and-shoulders neckline across November and April lows nL1N2OQ19O.
Much weaker-than-forecast euro zone industrial output nL8N2OQ24M was disregarded, largely because it was for May and the euro zone has since caught up with the U.S. in first COVID vaccinations -- though not full ones -- and been able to reopen more fully.
The euro is oversold and benefited from bullish divergence between rising 5-year Bund-Treasury yield spreads and EUR/USD prices, but it must establish a trading range above the 21-day moving average -- currently at 1.1880 -- to signal a broader upward correction.
With the ECB trying not to get ahead of the Fed in policy normalization and undercut the region's recovery nS8N2KW084, the burden of proof remains on EUR/USD bulls.
USD/JPY fell 0.56% on a combination of retreating Treasury yields and a failed attempt to fully reverse last week's slide.
Sterling's 0.31% gain and the 1.3890 high stopped shy of Tuesday and Monday's 1.3905/11 highs, despite lift from above-forecast May UK inflation nL8N2OQ19R.
The loss of MPC hawk Andy Haldane nL1N2OQ0GA and spreading COVID variant concerns cloud the expected timing of the first BOE rate hikes nL1N2OQ1CH.
Aussie gained 0.42 and most high-beta currencies rallied against the dollar, led by the RBNZ's decision to end their QE program nL4N2OP0YC and the pullback in Treasury yields.
But the expected reduction in Bank of Canada QE announced WednesdaynL1N2OQ0Y8 couldn't keep USD/CAD down after it breached the preceding five days' lows, as oil prices tumbled on soaring U.S. inventories and conflicting reports about an OPEC+ production agreement.
The beige book release late in the day more or less affirmed the known supply-demand imbalances and noted three-quarters of districts reported slight or modest job gains and the other quarter reporting moderate to strong gains nAQN04EV8P.
Details of the Senate's $3.5 trln reconciliation spending bill are awaited before markets can assess the potential impact.
Thursday brings U.S. weekly jobless claims, July Philly and Empire manufacturing indexes, industrial production and Fed Chair Powell's second Congressional appearance.
U.S. retail sales and Michigan sentiment follow on Friday.
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