Dollar Retreats Ahead of Fed Minutes, Rising Concerns Rally May Have Run Its Course

The U.S. Dollar edged lower against a basket of currencies on Tuesday after posting six consecutive higher closes. The catalyst behind the move was a dip in Treasury yields, position-squaring ahead of the release of the Fed Meeting Minutes on Wednesday and general nervousness over the whether the dollar rally had run its course.

On Tuesday, June U.S. Dollar Index futures settled at 93.526, down 0.055 or -0.06%.

Keeping the dollar index afloat since it bottomed on April 17 at 88.945 has been a steady rise in U.S. Treasury yields, particularly the U.S. 10-year yield which hit a seven-year high last week. However, this week, yields have retreated from last week’s high, encouraging a few dollar bulls to cash in their long positions while waiting for the next piece of bullish news.

U.S. Treasury Markets

U.S. Treasury yields were mostly flat Tuesday, as investors prepared for the release of the minutes from the latest Federal Reserve meeting due Wednesday at 1800 GMT.

The yield on the benchmark 10-year Treasury note, was largely unchanged at 3.071 percent, while the yield on the 30-year Treasury bond was also stagnant at 3.214 percent.

U.S. Economic News

It was a light day as far as economic reports are concerned. Service sector companies saw strong growth in May, the Federal Reserve Bank of Richmond said on Tuesday.

According to the Richmond Fed’s service-sector activity survey, the service sector revenues index rose to 11 in May from 2 in April, while the number of employees index jumped to 12 from 7, the wages index inched up to 17 from 16 and the demand index rose to 17 from 11.

U.S. Stock Market

The major U.S. stock indexes reversed course on Tuesday late in the session, giving up earlier gains after President Donald Trump said he is not satisfied with the outcome of last week’s trade talks between the United States and China. Trump further rattled investors by saying a highly anticipated summit with North Korea may not happen after all.

In the cash market, the benchmark S&P 500 Index settled at 2724.44, down 8.57 or -0.31%. The blue chip Dow Jones Industrial Average closed at 24834.41, down 178.88 or 0.72% and the tech-driven NASDAQ Composite ended at 7379.51, down 14.53 or -0.20%.

As far as the trade talks were concerned, Trump said he was “not satisfied” with the trade talks that took place with China last week. He called the negotiations a “start” as his administration keeps working toward a final deal to address trade imbalances with Beijing.

Renewed geopolitical tensions over North Korea also shook up investors enough to pare positions. Since the summit with North Korean leader Kim Jong Un is scheduled for June 12 in Singapore, traders will have about 2 weeks to express their concerns over the outcome of this event. Trump told reporters at the White House, “Whether or not it happens, you’ll be knowing pretty soon.”