The dollar rallied on Monday, tracking Treasury yields higher after President Joe Biden re-nominated Jerome Powell nL1N2Q11LH for a second Fed chair term, signaling policy stability after calls from his fellow policymakers last week to consider faster tapering nL1N2SA1SJ.
The news reinforced the view that the Fed is becoming more inclined to accelerate the reduction of QE to be able to begin raising rates in Q2 next year, rather than the Q3 start previous priced in when a longer tapering process was foreseen nFWN2RU24A.
EUR/USD fell 0.5% to a fresh 16-month lows of 1.1236 on EBS, with the euro already beset by record high new COVID-19 cases and some ramping up of euro zone restrictions.
Those events have given ECB chief Christine Lagarde added cause for pausing before reducing accommodation, saying a rate hike in 2022 isn't foreseeable nL1N2SD0EU.
But there is growing debate about the pandemic emergency purchasing programme due to end in March, and the pre-existing asset purchasing programme's subsequent role.
With cross currency basis swaps suggesting a potential dollar liquidity squeeze into year-end amid EUR/USD's breakdown this month, and IMM specs just barely net short, it's not hard to envision prices sliding toward support by 1.10 ahead of or after the Dec.
14-15 Fed meeting nL1N2SD1ER.
The biggest dollar gains among the majors was the 0.76% rise versus the yen, with JGB yields the least able to adjust upward with Treasuries due to BOJ's yield curve control.
USD/JPY shrugged off Friday's early slide to uptrend and retracement support and used a cluster of moving averages and the daily tenkan and kijun lines as a base for Monday's run toward last week's 114.975 multi-year peak.
The 115 level is seen as pivotal for options traders after being vigorously defended last week.
But if 5-year Treasury yields can clear their pre-pandemic lows and key retracement resistance at 1.30% it could be the signal for 115 clearance and a run toward the December 2016 peak at 118.66 and nearby 161.8% Fibo target nL1N2SD1O0.
GBP/USD fell 0.44% to its lowest in six sessions, dragged down by new pandemic lows in 5-year Gilt-Treasury yield spreads.
Though the BOE is expected to raise rates as soon as next month, and outpace the Fed next year, the pound's yield advantage is seen eroding in 2023 nL1N2SD1F9.
Most high beta currencies fell against the dollar, with Treasury yields up sharply.
Oil prices were up despite a report the U.S. and other countries would announce reserve releases Tuesday nL1N2SD1NZ.
Bitcoin and ether were heavy again, though ether remains above its 55-day moving average and cloud support.
Tuesday's highlight is global PMIs for November.
For more click on FXBUZ