Title: Dollar Retreats from 20-Year High; FOMC Meeting Looms Large

Jun 14, 2022 03:01PM ET

By: AnalysisWatch

The U.S. dollar eased slightly in early European trading Tuesday but remained near a 20-year high as traders prepared for the Federal Reserve's latest meeting, which followed a breaking U.S. inflation report.

At 3 a.m., the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 104.890 after hitting a two-decade high of 105.29 on Monday.

The dollar's recent gains followed Friday's release of the U.S. consumer price index for May, which hit a fresh four-year high of 8.6% year-on-year, prompting traders to price in more aggressive rate hikes as the Federal Reserve grapples with higher-than-expected inflation readings.

The prospect of more rate hikes by the Federal Reserve in the near future has caused the 2-year Treasury bond yield to rise sharply and currently stands at 3.3091%. The 10-year yield is below that at 3.3050%, a reversal that is usually seen as a sign of an impending recession.

The USD/JPY rose 0.1% to 134.59 after hitting a 24-year low of 135.22 on Monday. The Bank of Japan expanded its bond purchases on Tuesday to keep the yield on 10-year government bonds near the 0.25% ceiling to boost the struggling economy.

The yen is the worst-performing major currency this year, down about 14%, as the BoJ keeps interest rates low while U.S. yields soar on bets of more Federal Reserve rate hikes.

EUR/USD rose 0.4% to 1.0448, with the euro boosted after German consumer prices rose 0.9% on a monthly basis in May and inflationary pressures intensified in Europe's largest economy.

GBP/USD rose 0.4% to 1.2178, just above a two-year low, although the Bank of England is expected to raise interest rates by 25 basis points on Thursday.

The risk-sensitive AUD/USD rose 0.6% to 0.6963, the NZD/USD rose 0.5% to 0.6286, and the USD/CNY fell 0.6% to 6.7176.