The dollar index headed toward the U.S. close little changed on Tuesday, recovering from early losses sparked by hawkish ECB comments, which contrasted with caution toward removing accommodation expressed by Fed Chair Jerome Powell last week.
That dovish message was reinforced by below-forecast Chicago PMI and consumer confidence data, while the Delta wave of COVID cases remains a potential hindrance to the U.S. recovery.
ECB policymaker Robert Holzmann called on Tuesday for reducing emergency bond purchases as soon as next quarter nS8N2MM038.
ECB policymaker Klaas Knot said on Tuesday he expected the bank to start reducing the pace of its emergency bond purchases at next week's meeting, with a view to ending them in March nS8N2MM039.
The comments followed data showing euro zone inflation surged to a 10-year-high in August nL1N2Q20QH.
The euro zone inflation and ECB tapering comments weighed on the dollar initially, but it managed to claw back most of the losses and was down a paltry -0.04% at 92.66 late in the session, up earlier lows by 92.40.
The dollar rebound received help from month-end position rebalancing and ahead of Wednesday’s PMI data and Friday’s employment data, which will be parsed for hints at the transitory nature of U.S. growth and inflation.
EUR/USD slid from its early U.S. high at 1.1845, last trading at 1.1807.
The hawkish tilt by the ECB’s Holzmann only slightly narrows the U.S.-euro zone policy divide, with Euribor futures indicating a first ECB rate hike well into 2025 versus an H2 2022 move by the Fed.
USD/JPY rallied into the close, down just -0.06% at 109.99.
U.S.-Japan policy divergence should propel USD/JPY higher toward its July 2, 111.66 high as relative yield differential favor USD strength.
GBP/USD was flat.
Sterling bulls were unable to maintain cable's early rise to a two-week high above 1.3793, the 50% Fib of the July-August dip from 1.3984 to 1.3602.
Multiple daily moving averages above 1.38 offer resistance.
A close above 1.3824, the 55-DMA, would open the way for a test of daily cloud top resistance by 1.3911.
AUD/USD joined in broad rally on upbeat euro-zone taper tones and U.S. data disappointment, but softening commodities late in the session pulled it back from the highs.
The aussie was clinging to 0.27% gain at 0.7316, with a long upper wick on the daily candle raising concerns for recent AUD/USD longs.
Treasury yield moved a touch higher, back above 1.3%.
U.S. equities hovered near flat amid low liquidity in listless summer markets.
Bitcoin was up a scant 0.3% at $47.1k, with 200-DMA support holding by $46.1k and rock-solid resistance ahead of $50k and key Fib resistance by $51.03.
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