Forex Today: Dollar resumes advance as fears return

What you need to take care of on Thursday, June 2:

The American dollar surged during US trading hours as stocks fell and yields advanced. The catalyst was a mixture of upbeat US data boosting the greenback and concerns about a soon-to-come recession.

The focus remained on inflation and growth and whether policymakers would tighten monetary policies further. The latest taking action was the Bank of Canada, which lifted interest rates by 50 bps to 1.5% on Wednesday. Policymakers noted that they are prepared to “act more forcefully if needed” to achieve their 2% inflation target.

Late on  Tuesday, Atlanta Fed President Raphael Bostic clarified a potential pause in rate hikes in September should not be understood as the central bank coming to the rescue of markets. On the contrary, he said that by September, some of the uncertainty over the economy could be resolved, and therefore,  there could be a “significant reduction in inflation” this year. James Bullard, on the other hand, noted that it’s too early to say inflation has peaked, adding that a pace of 50 bps hike per meeting is a “good plan” for now.

The US ISM Manufacturing PMI rose to 56.1 in May from 55.4 in the previous month, surpassing the market’s expectations. The unexpected increase in activity boosted the dollar while affecting demand for Treasuries. But yields also rose on the back of lingering inflation concerns and rate hikes speculation, with that on the 10-year Treasury note reaching an intraday high of 2.95%.

The US Fed Beige Book brought up some interesting points. All the twelve districts reported continued economic growth, but the majority indicated slight or modest growth. Also, most districts informed of continued price rises, while three districts expressed concerns about a US recession.

Commodity-linked currencies were the best performers against the greenback, as the AUD/USD pair retained gains and settled at around 0.7190, while USD/CAD flirted with 1.2600 before bouncing to the current 1.2630 price zone.

The Japanese yen was the worst performer, as USD/JPY soared to 130.18, holding nearby early on Thursday.

The EUR/USD pair edged sharply lower, ending the day in the 1.0650 price zone, while the GBP/USD settled just below 1.2500.

The focus now shifts to US employment-related data ahead of the Nonfarm Payrolls report to be out on Friday.