The dollar started to give back some of its gains last Friday when last month’s inflation data failed to support growing speculation of a possible rate hike from the Fed. This morning the currency was still on the chopping block as a nearly barren economic calendar offered little to stem the fledgling losses in US yields.

In terms of price action, the lack of fundamental support didn’t translate into a decelerated decline for the greenback, merely extended weakness. EURUSD rose 45 points from morning lows, though the break through 1.34 was anticlimactic as spot set an initial peak at 1.3415. In contrast, GBPUSD crossed the psychological 1.98 level with some gusto. The pair cleared resistance at 1.9780 in the London session, and has since settled in a 40-point range below 1.9840. Despite the breather in US yields, the carry pairs were still attractive to currency traders. Despite the dollar’s weakness, USDJPY merely constricted itself to a 45-point band below 123.75. Finally, USDCHF reported another controlled loss. The Swiss franc gained 35 points against the greenback through the morning hours, though the dollar was able to make up most of its losses as US markets came on line.

There was only one newsworthy indicator on the docket this morning; and despite its unexpected print, it was unable to get an immediate rise out of the dollar. The National Association of Home Builders’ Housing Market Index dropped to its lowest level in over 16 years in its June reading. Economists were expecting the indicator to pass the period unchanged from its lowly 30 reading from May; so there was some surprise when the indicator crossed the wires at 28. The index is survey of homebuilder sentiment; and a print below 50 indicates the number of pessimists polled outnumbers those that are optimistic. The breakdown didn’t offer much of a silver lining. Components of single family unit sales, expectations for future sales and prospective buyers’ traffic all dropped to new cyclical lows. This report only confirms the trend that other market indicators have projected. Builders are struggling to prop up revenue by offering costly incentives and cutting prices in order to move stagnate inventories. While this indicator is certainly a leader in terms of coverage month, it is also lagging since sentiment is partially a reflection of older reports. FX traders look to have reserved their move on housing until tomorrow’s housing starts and building permits steal the headlines.

Before the market even had its taste of solid economic data though, the dollar was already in retreat. As the fundamental calendar lightens for the weak ahead, traders are comfortably seeking direction from yields. During the dollar’s steady rise through last week, the currency was gathering its strength from favorable rate differentials. Recently, speculation for future Fed meetings turned from a possible cut, to flat and even to a modest pricing of a hike. This was clearly visible in treasury yields and futures linked to short-term interest rates. In fact, the ten-year T-note has risen above the Fed’s 5.25 percent target rate. Things have changed somewhat since last week though. After the Labor Department’s inflation data failed to support the build up in speculation, there was a clear turn in the tides. Now, with traders looking at a barren docket ahead of them, there seems little that could put the hawkish run back on track. At the same time, speculation behind further hikes in big trade economies like the Euro Zone, UK and Australia are steadily rising. If tomorrow’s housing numbers fail to recharge the dollar, the dollar may be looking at accelerated losses as capital chases rate hikes.

US equity traders were still vying for direction mid-day, deciding whether conflicting domestic stories like a possible bid for Alcoa would overcome the pull to follow losses contracted in the European indices. By 16:00 GMT, the Dow and Nasdaq Composite were reporting 0.07 percent losses to 13,629.97 and 2,624.34 respectively. The S&P 500 was trading only marginally lower at 1,532.34. Despite the quiet conditions in the broad indices, there were a number of big stories floating around the market. Topping most financial headlines this morning was a report that suggested BHP Billiton was reviewing a possible $40 million bid for blue chip aluminum producer Alcoa. Shares of Alcoa were up $1.11 or 2.7% at $42.71 on the news. Another big, potential deal may be in the works for Wendy’s International. The fast food chain cut its earnings forecast for the year this morning and had also stated that a special board committee was exploring a possible sale. Wendy’s shares were off 3.6 percent at $38.30 on the immediate earnings new.

Treasuries were little changed mid-day Monday as investors weighed the appeal of a high yield against the possible follow through momentum on its recent yield run. The 10-year note was unchanged at 94-28 with a yield of 5.165 percent at 17:00 GMT. The T-bond was slightly more active in a 6/32nds dip to 92-06 as its own yield edged a basis point higher to 5.272.

John Kicklighter is a Currency Strategist at FXCM.