Forex Today: Dollar strengthens on risk aversion, focus turns to RBNZ

The key event during the Asian session will be the Reserve Bank of New Zealand meeting. Additionally, retail sales data is due in New Zealand. Later in Europe, focus will shift to UK inflation data. During the American session, the Federal Reserve will release the FOMC minutes.

Here is what you need to know on Wednesday, May 24:

The US Dollar strengthened on Tuesday amid risk aversion, while both the Nasdaq and the S&P 500 experienced declines of over 1%. Although US yields dropped, the US Dollar Index (DXY) rose, reaching two-month highs before retracing to 103.50.

The debt-ceiling drama remains unresolved as negotiations continued on Tuesday following a "positive" meeting between President Biden and House Speaker McCarthy. In terms of economic data, the US S&P Global PMI showed mixed results, while New Home Sales exceeded expectations. On Wednesday, the Federal Reserve (Fed) will release the minutes of its latest meeting.

EUR/USD weakened and fell toward weekly lows, nearing 1.0750. The Euro underperformed following data indicating a further contraction in the Eurozone manufacturing sector in May. On Wednesday, the German IFO Survey will be released.

GBP/USD dropped on Tuesday but closed far from the lows. The pair bottomed at 1.2367, the lowest level in a month and then rebounded back above 1.2400. EUR/GBP fell to test April lows under 0.8680. On Wednesday, the UK will report April inflation. 

USD/JPY  hit fresh six-month highs near 139.00. It is currently hovering around 138.50/60 as the Japanese yen stabilizes amid a decline in Treasury yields.

AUD/USD posted its lowest daily close since late April, although it managed to hold above the key level of 0.6600. The deterioration in market sentiment weighed on the Australian dollar, which failed to capitalize on a rebound in commodity prices.

NZD/USD suffered its worst day in a week, falling from 0.6300 to 0.6240. The Reserve Bank of New Zealand (RBNZ) will announce its decision on Wednesday. Also, Retail Sales data is due. 

Analysts at TD Securities wrote: 

The USD/CAD pair finished the session flat around 1.3500 after failing to hold on to earlier gains. The pair surged to a one-week high of 1.3546, but later pulled back as the Canadian dollar outperformed, boosted by rising crude oil prices and higher-than-expected wholesale inflation data from Canada.

Gold finished modestly higher, trading above the $1,970 level after a $20 rally during the American session. Silver, on the other hand, dropped again but finished far from its daily low, hovering around $23.40.

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