USD soft and trading broadly lower vs. most G10 - Scotiabank

The US Dollar (USD) is once again trading defensively and extending Monday's decline, weakening broadly against nearly all of the G10 currencies with the exception of AUD and NZD (trading flat), Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret note.

Miran and Cook set to attend two-day FOMC

"The outlook for relative central bank policy is front and center as market participants look to the two-day Fed meeting where both Stephen Miran and Lisa Cook will be in attendance. Miran was confirmed in a Senate vote on Monday evening and an appeals court blocked the White House from removing Cook--for now. Uncertainty is elevated as President Trump could still ask the Supreme Court to intervene. Markets are eyeing the FOMC's widely anticipated 25bpt cut, the statement tone, the forecast (and dots), as well as the possibility of dovish dissents (ie: calls for 50bpts)."

"Fundamentals are dominating and FX/spread correlations are elevated, highlighting the importance of interest rate differentials and the outlook for relative central bank policy. The theme is underscored by Tuesday's outperformance of EUR, driven by a better than expected ZEW investor sentiment release. GBP is also leading most of the G10 currencies following a better than expected employment release, while the JPY rounds out the winners as market participants respond to news of Shinjiro Koizumi's entrance into the LDP leadership race. Shinjiro is the son of former PM Junichiro Koizumi, and is seen as being more respectful of central bank independence relative to his competitor Takaichi."

"SEK, MXN and CAD are trading with marginal gains vs. the USD. The broader tone is one of risk appetite as equity futures push to fresh highs while Treasury yields tread water just above their recent lows. In commodities, the price of crude (WTI) is also consolidating around $63/bbl while the price of copper consolidates its recent recovery and Monday's notable gain. Gold is extending its rally to fresh highs, and vix futures are back at their lows ahead of the contract roll. For Tuesday's NA session we look to the release of high-importance US retail sales data and import prices at 8:30am ET. Industrial production will follow at 9:15am ET, and business inventories will round out the morning at 10am ET, along with the NAHB (housing market PMI) where the bar is relatively low (exp. 33 vs. 32 prev.)."