• USD loses momentum after weak housing starts and Powell remarks
  • USD/JPY drops after China threatens retaliation
  • Two-year yields reach ten-year high

The USD traded strongly in Europe and Asia yesterday but began to lose momentum as the US markets opened.

That could partly be ascribed to fairly poor housing starts data, but the biggest reason was Jerome Powell’s rather dovish remarks about the Federal Reserve’s Treasury holdings and downside inflation risks.

Earlier in the trading session, China again threatened retaliation for American tariffs on its products. This drove the USD/JPY lower, from 112.95 to 112.71, but it later recovered to 112.87.

The EUR/USD reached 1.1602 at one point, but it found support at this level and later improved to 1.1660 before the European close.

The GBP was hit badly by the inflation report, hitting an eight-month low of 1.3010. It found support at that level, however, and a report on an Article 50 extension later helped it to climb to 1.3070.

The commodity currencies took center stage later yesterday, escalating after oil and metal prices rebounded.

The USD/CAD kicked off at 1.3250, but it then dropped close to a full cent to reach 1.3165, with little local news to drive it.

AUD/USD climbed by 50 pips from its earlier low and reached 0.7400 later.

The USD Index remained between 94.9580 and 95.4070, dropping to the bottom half of this range in New York after disappointing US housing starts figures sparked profit-taking.

As far as yields were concerned, the two-year yields reached a ten-year high at 2.62% and remained there for the rest of the day. US ten-year treasury yields improved from 2.85% to 2.88%, while yields on Fed fund futures were still pricing 1 1/2 additional rate hikes before the end of the year.

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