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Late Greenback Squeeze As Markets Await US CPI

FOREX
  • Initial dollar weakness was largely attributed to the move lower in US yields throughout the European session. Moves advanced following 10yr yields closing at their lowest level since March on Tuesday.
  • A small extension of dollar supply was evident as we broke Monday lows in the DXY, however, markets quickly ran out of steam and a consistent squeeze ensued during US trade. The Late resurgence leaves dollar indices almost exactly unchanged on the week as markets await significant US inflation data due on Thursday.
  • GBPUSD weakness appeared to almost front run the move in the dollar amid souring sentiment with the E.U. Negative comments emerged from EU Commission VP Maros Sefcovic following his meeting with UK Cabinet Office minister Lord Frost earlier today. He said the EU will react "swiftly, firmly and resolutely" if grace period on chilled meat trade from GB to NI is extended unilaterally.
    • Sterling retreated from 1.4170 against the dollar and never recovered, currently settled around the lows of the week ~1.4115.
  • CAD had been the initial outperformer in G10, in anticipation of the Bank of Canada decision and aided by buoyant oil prices. The statement was broadly alongside expectations, reiterating slack expected to be absorbed sometime in H2 2022, in line with median sell-side forecasts. USDCAD held a very tight range but the path of least resistance caused a consistent squeeze for the pair from 1.2059 back to the highs of the day at 1.2118.
  • Focus turns to Thursday's release of US CPI and the ECB's monetary policy decision and press conference.
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