Dollar falls broadly

The dollar slid broadly on Thursday, hampered by a recent dip in U.S. 10-year bond yields, while commodity-linked currencies were bolstered by this week’s rally in metals and oil prices with the dollar’s index against a basket of six major currencies slipping to its weakest level in almost four weeks.

One could blame Wednesday’s U.S. consumer confidence report which fell from a 17-year high, but the dollar was declining before the release. I think the best explanation for the dollar weakness is the sharp fall in U.S. Treasury yields.

Despite appetite for risk sending Asian equities to record highs on Thursday, the safe haven Yen is outperforming its major currency peers. USDJPY dipped below 113 for the first time in days after the release of Bank of Japan meeting minutes. Some members are considering tightening monetary policy, if the economy continues to improve next year. This would be a significant shift in strategy for a Central Bank thought to be the last to exit the unconventional stimulus packages. However, I don’t think the BoJ will move anytime soon due to subdued inflation; but, given the lack of liquidity, moves in currency markets may be exaggerated.

Commodity currencies are also enjoying a decent upside, after copper prices rallied to their highest level in almost four years. Oil prices remained close to a two-and-a-half year high, and gold hit a one-month high. Considering that no Tier One economic reports will be released, the Aussie, Kiwi and Loonie will continue to follow commodity prices’ direction.

Later on, during the day we have major data releases at:

09:00 GMT ECB Economic Bulletin will be released.

13:30 GMT US Continuing Jobless Claims (Dec 15) 1.900M expected from 1.932M prior. Initial Jobless Claims (Dec 22) expected to be 240K with a previous reading of 245K. USD pairs could potentially see movement in price action as a result of data missing forecasts.

14:45 GMT Chicago Purchasing Managers Index (Dec) with a consensus of 62.0. The prior number was 63.9.

16:00 GMT EIA Crude Oil Stocks change (Dec 22) expected draw of -3.970M v the previous reading of -6.495M. This data release was delayed due to holidays on Monday for Christmas. Oil traders will watch for divergence from expected data and trends forming in the market.