Dollar Performance Overview

The dollar retreated modestly against most majors on Thursday as U.S. data failed to inspire further gains, and investors awaited the highly anticipated inflation report on Friday.

Economic Data Impact

• Initial Jobless Claims: Fell more than expected despite an upward revision, but continued claims exceeded forecasts, highlighting mixed signals from the labor market.
• Durable Goods Orders: Grew slightly in May, contrary to forecasts for a decline, but closely watched core orders contracted unexpectedly.
• Q1 U.S. GDP: Final revision slightly higher.

U.S. Treasury Yields

• Yields were 2-3 basis points lower, with spreads versus Bunds, gilts, and JGBs moving against the dollar.
• Yields built further downward momentum after a $44 billion auction of seven-year notes produced solid results, with above-average non-dealer bidding.

Market Outlook

Focus on Inflation Report

• The market outlook is focused on Friday's inflation report, which is expected to provide clarity on the direction of U.S. monetary policy.
• Mixed signals from recent economic data suggest a cautious approach from the Federal Reserve, with the inflation report likely to play a pivotal role in shaping expectations.
• U.S. Treasury yields are expected to remain sensitive to economic releases, and any significant deviations from expectations could lead to volatility in the currency markets.

Geopolitical and Commodity Market Influences

• Geopolitical tensions in the Middle East and Europe, along with supply disruptions, continue to support crude oil prices.
• Copper remains under pressure due to rising inventories and lackluster demand from China.

Currency Summary

Dollar Movements

• The dollar saw modest retreats against most majors.
  • EUR/USD: Rose 0.24%, benefiting from weaker U.S. data and lower Treasury yields.
  • USD/JPY: Edged down 0.05%, reflecting a slight easing in dollar strength.
  • GBP/USD: Gained 0.18%, supported by a general dollar pullback.
  • AUD/USD: Dipped 0.07%, reflecting continued concerns about demand for commodities from China.

Overall, the dollar's retreat was influenced by mixed economic data and lower Treasury yields, providing some relief to other major currencies.

Currency Outlook

• The upcoming inflation report and its implications for Fed policy will be crucial.
  • Stronger-than-Expected Inflation: Could revive expectations for a more aggressive monetary policy stance, supporting the dollar.
  • Weaker Inflation Reading: Might reinforce a cautious approach from the Fed, weighing on the dollar.
• EUR/USD: Likely to find support from weaker U.S. data.
• USD/JPY: Movement will depend on the balance between U.S. yield trends and risk sentiment.
• GBP/USD: May continue to benefit from dollar weakness.
• AUD/USD: Performance will be closely tied to commodity demand from China.

The overall market sentiment will be shaped by economic data releases and geopolitical developments in the coming days.

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