The dollar fell on Monday as investors found further evidence that markets had priced in peak Fed tightening, though EUR/USD stopped at key resistance in the face of event risks this week, even with the ECB set to launch its rate-hike campaign.
Early risk-on flows weighed more on the dollar, but dismal July homebuilder sentiment spooked U.S. equities nL1N2YZ163 and revived safe-haven dollar bids.
EUR/USD rose to a high of 1.0202 on EBS but failed to clear the 38.2% Fibo of the post-June Fed meeting slide at 1.0205.
It was still up 0.66% and a close above 1.0205 could help it reach prior major support-turned-resistance in the 1.0340-60 range, with the 61.8% Fibo also at 1.0362 nL1N2YZ12B.
With markets betting on an additional 200 bps in U.S. rate hikes this year, the dollar will retain the advantage over the euro since the ECB is expected raise rates a total of 200bp by December 2023 from a much lower base of -0.5% now.
However, the Treasury yield curve is flattening while bunds are steepening, keeping longer-term bund-Treasury yield spreads above May lows.
Markets are awaiting news on Russian natural gas supplies to Western Europe when the Nord Stream 1 pipeline's maintenance period ends on Thursday, while Russia's Gazprom has told customers in Europe it cannot guarantee gas supplies because of 'extraordinary' circumstances, according to a letter seen by Reuters nL1N2YZ0ZF.
Sterling gained 0.87%, boosted by the dollar's pullback, earlier risk-on flows and UK Conservatives vying to replace Boris Johnson as prime minister calling for a tougher stance on inflation nL8N2YZ2CC.
Unless the BoE, which is expected to hike by 50 bps at its next meeting, is seen eventually closing the gap between its policy rate and the higher Fed funds rate, sterling rallies will be seen as the bear market variety nL1N2YZ0YZ.
USD/JPY fell 0.39% in a muted version of the day's broader dollar-down session.
The yen, also a haven, weakened on the crosses but recovered as risk came off late in the day.
Pricing out a 100bp Fed hike this month and the miserable NAHB data left USD/JPY on the back foot but still above the first major support from the tenkan and 10-day moving average at 137.16-12 nL1N2YZ15X.
The Australian and Canadian dollars gained 0.34% and 0.51%, respectively, with risk-on early, commodities up and China again talking up support measures nL1N2YZ032 that left USD/CNH down 0.1%.
Bitcoin and ether rallied roughly 35% and 8.6%, respectively, hitting their highest levels since mid-June.
More U.S. housing data is on tap the next few days, but the focus is mostly on Thursday's ECB meeting and natural gas supply news.
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