US dollar index rebounds from 1-month lows

The US dollar rose across the board on Wednesday making a correction after Tuesday’s decline. Before the end of the session, Janet Yellen speech from San Francisco was awaited. 

Volatility in financial markets was lower on Wednesday. US economic data had little impact on price action. The CPI index rose in line with expectations: up 0.3% in December and at an annual rate of 2.1% (fresh 2-year high). Industrial production rose 0.8%, above the 0.4% expected in December. According to the Beige Book, economic activity continued to expand at a modest pace during the final weeks of 2016. 

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The US Dollar index, which gauges the US dollar against its main competitors, bottomed on Tuesday at 100.18, the lowest since December 8 and on Wednesday moved all day with a bullish bias. Minutes before Yellen speech it was trading at daily highs, at 100.88, up 0.67% for the day. The DXY recovered above the important 100.60 area but the short-term trend was still pointing to the downside. 

Greenback rose particularly against the Canadian dollar. The Bank of Canada left interest rates unchanged and governor Poloz mentioned during the press conference that rate cuts were still an option if downside risks materialize, sending the loonie to the downside in the market. USD/CAD jumped from 1.3090 to 1.3235. 

Equity prices on Wall Street were little changed. Crude oil was falling sharply, the WTI barrel was losing almost 3%, moving toward $51.00. The stronger US dollar also pushed gold to the downside; the value of the ounce dropped to $1208, erasing part of yesterday’s gains. 

Market participants were expecting Yellen’s speech. On Thursday the key event will be the European Central Bank meeting, and Yellen again, will deliver a speech. The historic event of the week will take place on Friday, with the inauguration of Donald Trump.