The dollar index recovered most of its early losses as EUR/USD's relief rally again ran into sellers by last week's rebound highs and USD/JPY soared to fresh 24-year highs after the BOJ got approval from PM Kishida to pursue its ultra-easy policies despite yen weaknessnL1N2Y805L.
A second day of profit-taking on risk-off trades and nibbling by dip buyers in stocks, after slides into bear market territory last week, weighed on the haven yen and dollar, but the durability of those flows remains questionable with all major central banks tightening except for the BOJ.
EUR/USD was up 0.22%, but well off the 1.05825 EBS Tuesday high that again found sellers by the daily cloud base and the 30-day moving average.
The EU is scrambling to find alternatives to Russian natural gas and oil supplies nL8N2Y82D7 while tensions with Moscow are threatening to boil over as Brussels enforced sanctions that cut off Kaliningrad's rail link nL8N2Y74TF.
Also limiting EUR/USD's recovery was that the post-emergency ECB tightening of BTP-bund yield spreads has stalled near 2% and still about twice as wide as it was a year ago.
USD/JPY gained 1% and was at session highs and nearly at the 136.50 Fibo-projected peak off May's correction lows.
The Fed is seen on track to reprise this month's 75bp hike at its July and September meetings to prevent more damage from inflation.
A clear USD/JPY breakout above 136.50 would open a door to 138.62, the 161.8% Fibo from 2021's lows nL1N2Y819V.
Though U.S. economic data continue to show the early impact of higher borrowing costs and lofty prices nL1N2Y8187, supplies remain vastly outmatched by demand, with hefty residual pandemic and infrastructure fiscal stimulus and household savings raising the bar for Fed tightening.
Sterling managed a modest 0.15% gain as tens of thousands of British rail workers went on strike nL1N2Y808R, adding to economic concerns due to rampant inflation and the BoE's efforts to fight price growth expected to reach 11% this year.
Below-forecast UK CBI orders data ahead of Wednesday CPI report, and Fed Chair Jerome Powell's Congressional appearance, made Tuesday's 1.2324 high look a little rich, as prices consolidate within last Thursday's recovery range nL1N2Y816B.
Better-than-forecast Canadian retail sales helped USD/CAD fall 0.4% amid the broader risk-on flows and rising commodities.
Aussie gained 0.3%, limited somewhat after RBA Governor Philip Lowe played down the chance of rates being increased by a super-sized 75 basis points and took issue with market pricing of rates reaching as high as 4% by year end nL1N2Y802G.
Bitcoin and ether rebounded early with stocks after further crypto beatings over the weekend, but the bounces faded.
UK inflation data and Fed Chair Powell's testimony top Wednesday's event risks.
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