The dollar turned tail on Monday, surrendering a chunk of its post-Fed rally as risk markets perked up, while sterling surged on expectations that the BoE might follow the U.S. central bank's hawkish lead.
The pullback in the dollar index, which followed three days of sharp gains, revealed market hesitance to mount a serious challenge to Fibo resistance at 92.52.
Tumbling U.S. Treasury yields set the weaker tone for the dollar overnight but then rebounded as two-year yields took the baton in the U.S. session, falling since just before midday as markets paused following a rush to pull forward rate hike projections late last week.
Some of this may be position adjustment ahead of testimony on Tuesday by Fed Chair Jerome Powell, which could also be encouraging recent dollar longs to trim positions.
Hawkish Fed expectations led some to consider whether other central banks could also shift toward contemplating less accommodation as COVID fears ebb and global growth and inflation pick up.
Dollar selling persisted throughout the U.S. session, taking it further from Friday's highs.
EUR/USD support held ahead of 1.1837, the 76.4% Fib of 1.1704-1.2266 from March to May.
Though daily RSI turned up from oversold territory, suggesting short-term upward momentum, rally sellers may be waiting in the shadows near the cloud base and 200-DMA near 1.2040/50.
EUR/USD needs to rally beyond 1.2057, the 50% Fibo retracement of the May-June fall, to alleviate bearish pressure.
USD/JPY was flat on the day after rallying back from 21-DMA support by 109.71. U.S.-Japan monetary policy divergence gives the advantage to dollar bulls.
GBP/USD led major currencies higher, rallying 1.03% by late U.S. trade to 1.3934. Support was building after cable survived probes on Friday and Monday below 1.3800.
Thursday’s MPC meeting remains the key cable event this week, with bulls likely to rejoice in any hawkish BoE shift.
Commodities rebounded on dollar selling, helping to lift AUD/USD and other high-beta currencies.
More draconian Chinese regulation of bitcoin mining weighed on the crypto space.
BTC fell 8.6% to 32.43k, key support at recent lows 31.03k, the June 8 low, and 30k, the May 19 flash low.
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