The US Dollar (USD) is weakening broadly into Wednesday’s NA session, extending Tuesday’s CPI driven-decline and retracing most of its US/China-trade related relief gains from the start of the week, Scotiabank's Chief FX Strategist Shaun Osborne notes.

USD under broad pressure for second session

"Markets appear to be responding to media reports of US/Korea talks earlier this month that covered the topic of exchange rates and seemed to reinforce market suspicions of a US administration that appears to be leaning toward a preference for a weaker dollar. KRW is up over 1% on the day and Asian currencies are leading gains in FX. The relative performance among G10 currencies is suggestive of mild risk aversion, with notable outperformance from the JPY and CHF and relative underperformance from AUD and CAD."

"The broader tone across asset markets are confirming the signals from FX as European equity indices trade softly, along with US equity futures. In bond markets the US 10Y yield is pulling back from Tuesday’s high around 4.50% and the 2Y looks to be stabilizing with notable congestion around 4.00%. The signals from crude are not much better, as WTI struggles to extend its recent gains above $63/bbl while copper climbs within a descending channel at the midpoint of its much larger range. Finally, gold is trading within a remarkably tight range and the metal looks vulnerable to further weakness, as it hovers above support around $3200/oz."

"For Wednesday, the US release calendar is empty leaving the focus squarely centered on Fedspeak and the scheduled appearances from Waller, Jefferson, Daly, and Goolsbee. The tone is critical as we continue to note the clear divergence between Fed speakers maintaining a bias toward ‘patience’ as other major central bank policymakers lean dovish with a clear bias toward further rate cuts. Markets have roughly halved their pricing of Fed cuts by December, pricing just over 50bpt of easing vs. just over 100bpts of cuts as of April 30."