Trade Of The Week: Will USD Continue to Reign Supreme?

The past few weeks have been rough for the greenback thanks to renewed risk sentiment and markets scaling back bets for further aggressive Federal Reserve interest rate increases. Since the start of Q4, the dollar has depreciated against almost every single G10 currency – shedding more than 6% against the Norwegian Krone and over 5.7% versus the New Zealand Dollar.

Since hitting a fresh 20-year high above 114.50 back in late September, the Dollar Index (DXY) seems to be respecting a bearish channel, creating fresh lower lows and lower highs. With prices trading below the MACD and approaching the 110.00 support, a breakdown could be on the horizon.

There was a similar move on the equally-weighted dollar index which is wobbling above 1.2400 as of writing.

With the path of least resistance on the technical charts pointing south and the fundamentals slowly swinging in favour of bears as investors trim Fed hike bets, the dollar could end Q4 on a negative note. However, there are a couple of key US economic reports and one more Fed meeting in December which could heavily influence the dollar’s medium to longer-term outlook.

In the meantime, the dollar may be waiting for a fresh fundamental spark…and this could be the US inflation report on Thursday.

The Low Down…

Last week, king dollar surrendered its gains thanks to the improving market mood and growing expectations around the Federal Reserve delivering smaller rate hikes.

The Fed hiked interest rates by 75bps for the 4th straight time and Jerome Powell sent a clear message to markets about the potential for rates to peak higher than expected. Given how this move poured cold water around a dovish pivot, dollar bulls were injected with renewed confidence.

However, the jobs report for October sent mixed signals about the US labour market. Although the Nonfarm payrolls surged by 261k in October, above market forecasts of 200k – the unemployment rate rose to 3.7%, still close to a 50-year high. The mixed jobs report combined with soft economic data prompted market players to price in smaller rate hikes in the future. According to Bloomberg, traders have priced in a 50bps rate hike in December with the probability of a 75bps move only at 25%.

These reduced Fed hike bets may keep the dollar subdued ahead of the next major risk event. On a technical front, the damage is already being done on the equally weighted USD index which is struggling to keep above 1.2400. A breakdown below this point could trigger a selloff towards 1.2340 in the near term.

Will CPI Data Revive USD Bulls?

The greenback is set to remain choppy and shaky ahead of the latest US inflation reading on Thursday.

Markets expect the headline CPI to have increased 8% year-on-year in October, down from 8.2% in September. In regards to Core CPI, which strips out the volatility from food and energy prices, it is expected to remain at a 40-year high of 6.6%.

If the US inflation data exceeds market expectations, this may rekindle expectations around the Fed delivering jumbo hikes – resulting in a strong US dollar. Although a scenario where prices begin to slow may weaken the dollar and reduce rate hike expectations, inflation is still well above the Federal Reserve’s safe zone.

Time for Dollar to Sell Off?

The equally weighted dollar index could be preparing to tumble lower if 1.2400 proves to be unreliable support. Prices remain in a bullish channel on the weekly charts but the heavily bearish candle printed last week signals a potential breakdown. Such a development could open the doors back towards 1.2184 and 1.1900, respectively. Should 1.2400 prove to be solid support, prices may rebound back towards 1.2500, 1.2750, and 1.2800, respectively.

For more information visit FXTM.

Mid-Week Technical Outlook: US Dollar

Since the start of Q4, dollar bulls have been missing in action as investors bet the Federal Reserve will slow the pace of rate hikes in the face of slowing economic growth.

This has pushed the Dollar Index (DXY) to its lowest level in five weeks, injecting bears with enough confidence to attack 110.00. Given how the dollar may weaken further on Fed pivot hopes, this could drag the DXY towards 109.00 in the near term.

We can see a similar theme in the equally-weighted USD index. Prices are under pressure on the weekly charts. Sustained weakness below 1.2500 could open the doors towards 1.2184.

EUR/USD Back Above Parity

As the dollar struggles across the board, this has offered an opportunity for currencies to fight back. Euro bulls wasted no time in pushing the EURUSD back above parity for the first time in five weeks. With dollar bulls missing in action amid Fed pivot hopes, and the ECB expected to raise rates by 75 basis points on Thursday, this has propelled the EURUSD towards 1.0030. A daily close above parity could encourage a move towards 1.0100 in the short term. If parity proves to be unreliable support, we could see a decline back toward 0.9900.

GBP/USD Breaks Above 1.1490

Pound bulls blasted above the 1.1490 resistance level this morning thanks to a weaker dollar. Prices have turned bullish on the daily timeframe and could hit the 100 SMA in the short term. A strong break above this level may see prices test the daily bullish channel around 1.1850. Should the upside lose momentum, a move back toward 1140 could be on the cards.

AUD/USD Eyes 0.6550

It looks like AUDUSD bulls are back in town. The sharp rebound witnessed today could signal the return of bulls with 0.6550 acting as a key point of interest. A strong break above this level could see the currency pair target the 50-day SMA and higher. Should 0.6550 prove to be a tough resistance to crack, the AUDUSD could return towards 0.6340 and 0.6200, respectively.

USD/JPY Capped Below 149.00?

After creating consistently higher highs and higher lows, USDJPY bulls could be taking a break. Prices are trading back below 149.00 thanks to fundamental forces and may sink lower due to a weaker dollar. Bears may target 145.00 and 143.50 which is where the 50-day SMA resides.

Watch Out for the NZD/USD

It looks like the NZDUSD could be gearing for a major breakout above 0.5800. Such a move could open a path toward the 50 day SMA at 0.5880 and 0.5900. A scenario where 0.5800 holds the forte may send prices back towards 0.5720 and 0.5560.

For more information visit FXTM.

Trade Of The Week: Big Week For Dollar As NFP Looms

G10 currencies were practically pulverized by the greenback’s dominance with the pound shedding roughly 17% and yen over 20%.

After hitting a fresh 20-year high above 114.50 last week, the Dollar Index (DXY) tumbled thanks to a sharp recovery in the euro & pound. Given how the euro makes over 55% and the pound more than 10% of the DXY weighting, any further recovery in both currencies may influence the index’s direction in the short term.

We also saw some action on the equally-weighted dollar index which failed to secure a weekly close above 1.2800.

Despite the weakness witnessed last week, dollar bulls remain in the driving seat with the fundamentals keeping the engines healthy and running smoothly. However, a fresh catalyst could be needed for bulls to switch into higher gear in the weak ahead…and this could be the highly anticipated US jobs report on Friday.

Taking a quick look at the technical picture, prices remain bullish on the weekly charts as there have been consistently higher highs and higher lows. The DXY could make a new higher low before pushing higher or simply push back above 114.50 to test 114.73 and beyond.

The Low Down…

King dollar continues to feast on aggressive rate hike bets and global recession fears.

Last week, a chorus of Fed speakers struck an almost universally hawkish note on rate hikes. We saw the 10-year Treasury move above 4% for the first time since 2008, fuelled by expectations for the Fed to launch more monetary bazookas. As concerns intensified over the hawkish policies by global central banks sparking a recession, investors turned to the dollar as a shelter of safety.

As the first month of Q4 gets underway, dollar bulls have kicked off on a shaky start. Although it has weakened against most currencies, it is still early days. Traders are predicting a 66% probability of a 75-basis point rate hike in November. If this becomes reality, that would mark the fourth consecutive jumbo-sized 75 bp rate hike in 2022 against the inflation menace. Such a move could inject dollar bulls with renewed inspiration but investors may be more concerned with what happens beyond November and the New year.

Ahead of the Fed’s next policy meeting next month, key US economic data and speeches from Fed officials may influence expectations over how aggressive rates are hiked. Given how the dollar remains highly sensitive to speculation around hikes, this could translate to volatility over the next few weeks.

The Week Ahead…

It’s all about the US jobs report on Friday.

The consensus expects the US economy to have created 250k jobs in September which comes after a fifth straight beat in August. The unemployment rate is projected to remain at 3.7% while wage growth is seen hitting 0.3%. If the pending jobs data meets or exceeds market expectations, this may reinforce bets over the Fed moving ahead with a 75 basis point rate hike in November. Alternatively, a soft jobs report may reduce the odds of another jumbo- rate hike – weakening the dollar while supporting equity markets.

It may be wise to keep a close eye on the numerous speeches from Fed officials throughout the week. If Fed speakers remain hawkish and signal more aggressive hikes, this could keep dollar bulls hydrated ahead of the US jobs report. On the other hand, any hint of doves may see dollar bears enter the scene.

Dollar Set to Rebound?

After failing to secure a weekly close above 1.2800, the equally-weighted dollar index has edged slightly lower. Nevertheless, the fundamentals remain in favour of bulls and this could limit downside losses.

Bulls need to push back above 1.2800, to open a path back towards 1.2880 and higher. Sustained weakness below 1.2800 may open the doors towards 1.2500 and 1.2184.

Should 1.2500 prove to be reliable support, a rebound back towards 1.2800 could be a possibility.

For more information visit FXTM.

Mid-Week Technical Outlook: Dollar Dominates FX Space

Major currencies have been crushed by the dollar’s meteoric rise this month with the British Pound and New Zealand dollar shedding over 8%. Given how the dollar continues to draw strength from aggressive rate hike bets, geopolitical tensions, and positive US economic data – more upside could be on the cards.

With more Fed officials scheduled to speak this week, this may translate to more volatility on the dollar. Where there is volatility, there are potential opportunities.

Our focus today will be mainly on USD crosses with the tool of choice none other than technical analysis.

DXY Bulls Unstoppable?

The dollar’s appreciation over the past few days has been phenomenal. Bulls remain supported by key fundamental forces with the technicals signalling further upside. Prices are trading around 114.70 as of writing with the next key point of interest at 115.00. A strong breakout above this level may open the doors towards 115.34 and 118.75. Should 115.00 prove to be strong resistance, a decline back towards 113.30 and 111.60.

EUR/USD Eyes 0.9500

An appreciating dollar has dragged the EURUSD well below parity. Prices are heavily bearish on the daily timeframe with the candlesticks respecting a bearish channel. A strong breakdown below 0.9500 could open a path towards 0.9300. If 0.9500 proves to be tough support to crack, a rebound back towards 0.9900 and parity could become reality.

GBP/USD Preparing to Resume Selloff

It’s been a rough week for the GBPUSD. After hitting an all-time low on Monday, we saw the currency stage a sharp rebound. Nevertheless, prices remain heavily bearish with a break back below 1.0600 suggesting a decline towards 1.0520 and 1.0350, respectively. Should prices rebound back towards 1.0850, the currency pair could test 1.1000 and 1.1350.

AUD/USD Bears Eye 0.6200

Aussie bears remain in the driving seat as the currency pair descends lower with each passing day. There have been consistently lower lows and lower highs while the MACD trades to the downside. A strong breakdown below 0.6350 could encourage a decline towards 0.6270 and 0.6200.

USD/JPY Breakout on the Horizon

It’s all about the 145.00 level on the USDJPY. A stronger dollar could encourage bulls to conquer this resistance, opening the doors towards 147.00 and higher. Given how this level has stood the test of time. A rejection from this point could result in the USDJPY trading back within its current range.

NZD/USD Rebound in the Process?

After dropping over 500 pips this month, could the NZDUSD be preparing for a rebound? There have been consistently lower lows and lower highs while the MACD trades to the downside. Prices recently staged a strong rebound from the 0.5560 level with bulls eyeing 0.5720 and 0.5800, respectively, below 0.55600 – prices may sink towards 0.5500.

For more information visit FXTM.

Why FX Markets React to Central Banks?

Here’s a quick catch up:

  • US Federal Reserve: hiked by 75 basis points
  • Bank of Japan: left benchmark rate unchanged
  • Swiss National Bank: hiked by 75 basis points
  • Central Bank of Norway: hiked by 50 basis points
  • Bank of England: hiked by 50 basis points

READ MORE: (Sept 19 article) Trade of the Week: GBPUSD to sink further?

For an example as to how much a central bank can influence FX markets, consider how the equally-weighted USD Index (which measures the dollar’s moves against six other G10 currencies) has punched its way to a fresh two-year high, trading at levels not seen since the onset of the pandemic.

Such a spike in the US dollar came after the US central bank, also the world’s most influential central bank, informed markets that it has to push US interest rates higher than expected in order to combat stubbornly-high inflation.

With so much action going on across FX markets, here’s a timely reminder of the basics surrounding how central banks impact FX markets.

First, let’s begin with …

What Is A Central Bank?

A central bank is an institution that manages a country’s currency and money supply.

It also helps the economy achieve certain goals, such as keeping unemployment stable and low while ensuring price stability (keeping inflation under control).

What’s The Main Problem For Central Banks Right Now?

Currently, the number one problem facing most central banks around the world: red-hot inflation!

That is to say, the central bank’s is trying hard to make sure that the prices that consumers are paying don’t rise too much too fast.

Of course, the central bank wants to protect the public and make sure consumers can continue spending money to help grow the economy.

Otherwise:

  • When things get too expensive, consumers may not be able to afford as much goods and services, which may lead to lowered spending.
  • When overall spending sees a big drop in an economy, that would negatively affect the income that businesses and producers can get.
  • Less income for companies may translate into cost-cutting measures (e.g. job cuts) in order for the business to try and survive.

In short, inflation that’s out-of-control is bad news for the economy.

How Are Central Banks Trying to Control Inflation?

The main way that most central banks try and subdued red-hot inflation is by raising interest rates.

Here’s how it works:

Higher interest rates = lower demand / lower money supply = slower inflation

However, there’s a dark side to interest rate hikes as well.

If a central bank raises its benchmark rate(s) too high, too fast, that may destroy demand levels (drastically lowered spending) in an economy to the point that there’s a recession!

Hence it’s a tricky balancing act that central banks face right now.

They have to raise interest rates high enough to subdue inflation, but not do it too much so as to incur too much pain for the economy (e.g. too many jobs lost).

So How Does All this Impact Currency Markets?

Here are three key ways:

  1. Economic performance

Markets reward the currency of the economy that can better withstand these higher interest rates.

For example, the US dollar has surged to its highest levels against the British Pound since 1985, even though both the US Federal Reserve and the Bank of England have been raising interest rates.

Because markets believe that the US economy is better withstanding this ongoing rate hikes, better than the UK economy that’s facing its worst cost-of-living crisis in a generation, there has been more demand for the US dollar relative to the British Pound.

Hence, no surprise that GBPUSD has now reached its lowest levels since 1985.

  1. Yields

When a central bank raises its interest rates, investors also sell off its government bonds.

When the prices of these bonds fall, their yields rise.

NOTE: Yields are a measure of how much an investor can earn from a particular asset.

Hence, the country whose bonds offer a higher yield then attracts more investors, who then demand more of that country’s currency in order to purchase its assets.

In fewer words, generally speaking, higher yields = stronger currency.

This is especially evident in USDJPY which has soared to its highest levels since 1998 earlier, almost touching the 146.0 mark before pulling back today.

When you consider the following yields on offer:

  • US 10-year Treasuries: 3.53%
  • Japanese 10-year government bonds: 0.228%

Given this massive gap between US and Japanese yields, no surprise that investors have been flocking to the US dollar and less so the Japanese Yen.

  1. Currency intervention

A currency that weakens drastically can also have negative consequences.

For one, it makes imports more expensive, which means consumers in that country have to fork out more money to buy imported goods and services.

Again, when prices go up, demand/spending goes down.

Hence, a central bank may intervene to support its currency, like the Bank of Japan announced today (Thursday, sept 22nd).

And sometimes, markets are ready to react to the mere though of currency intervention, and not the actual “intervening” in and of itself, as was the case with the Swiss National Bank today.

With all that said, hopefully it is now clear what central bankers say and do often do have a massive impact on FX markets, as we’ve seen all of this week.

And there are more key decisions and announcements to be made in the months to come, seeing as this global battle against inflation is far from over.

So make sure you keep watching this space for the latest developments surrounding upcoming central bank decisions.

For more information visit FXTM.

Is The US Dollar (finally) Peaking?

In short

Following the ECB’s 75 basis point hike, markets are preparing for a shift from monetary policy divergence, which had been supportive for the dollar, to monetary policy convergence. Aside from the ECB, the SNB and the BoE have also signalled their willingness to act more forcefully. This has certainly removed some appeal from the US dollar. Nonetheless, we doubt that USD could experience a significant drop in the short term as growth and recession fears continue to provide support.

US Dollar Near Decade Highs

The US dollar has surged dramatically against the world’s biggest currencies this year. The greenback is up 13% against the euro, 15% against the British pound, and 20% against the Japanese yen year-to-date.

Screenshot 2022-09-11 at 14.16.43

The US dollar index (DXY), which tracks the relative value of the US dollar against a basket of important world currencies, has surged to its highest level since 2002. The index has risen 15% this year, putting it on track for its biggest annual rise since 1981.

Underpinning the dollar’s seemingly unstoppable surge is the Federal Reserve, coupled with doubts about the global economy. To dampen rampant inflation, the US central bank has embarked on the most aggressive interest-rate hikes since the 1980s, raising interest rates by 2.25% since March. Looking at market pricing, traders expect this tightening to continue into 2023, with a ceiling near 4%.

Screenshot 2022-09-11 at 14.04.15

Resilient US Economy Boosts Dollar Demand

Another factor in favour of the greenback has been deteriorating growth perspectives overseas. The meteoric rise in USD, which has led to a weaker euro, pound and yen, has worsened inflation problems in Europe, the UK and Japan, and hence has heaped pressure on policymakers to follow the Fed with aggressive rate hikes.

But the reality is that while the Fed has the luxury of sounding hawkish as the US economic data remain resilient, other central banks, especially the ECB and the BoE, do not enjoy the same leeway as their economies are already struggling with consequences from the Ukraine war. Therefore, hiking rates in this region may just worsen the slowdown and increase the odds of recession. This is why investors have preferred to hold on to the dollar.

The renewed sell-off in Treasuries this month has also again widened the yield gap between the US and Japan, pushing the yen to a 24-year low and on track for its worst year on record. This has prompted the strongest warnings to date from senior Japanese officials. Finance Minister Shunichi Suzuki said « «We’ll keep watching the markets with a high sense of urgency, and if the moves continue, we’ll respond as needed».

Despite the salvo of official warnings last week, the comments were insufficient to reverse the yen’s slide in the face of intense dollar strength. Many analysts expect that a stronger ramping up of language or possibly the calling of a trilateral meeting between the Bank of Japan, finance ministry and financial regulator in response to the sharp slide could prove more impactful.

Technical Analysis

Looking at the EURUSD and bearing in mind that much bad news is already priced into the single currency (including geopolitics, inflation and increased recession risk) – a new near-term base may be seen near parity, with higher risks to the upside should the ECB deliver on its expected rate hikes while containing a crisis in the bond market.

Regarding sterling, after another 10% sell-off in GBPUSD throughout the first half of the year and a currency that looks historically cheap and undervalued, the pound is likely to underperform peers, given domestic economic problems and political distractions.

Considering the yen, chances for continued yield-driven underperformance are high. Indeed, a BOJ rate hike seems off the agenda for now. BOJ intervention threats may resurface, but only coordinated action, which we see as unlikely for now, can reverse the trend. Ultimately, a BOJ policy U-turn and/or softer Fed will alter the yen’s fortunes, but we aren’t there yet.

Risk

Overall, we expect the dollar to hold up well over the coming months, supported by high interest rates and a resilient US economy. Nonetheless, it should be noted that USD valuations are stretched, with the currency near a 20-year high against a basket of major currencies. Moreover, Fed tightening assumptions are at peak hawkishness, which indicates the rate hike cycle may be nearing its end stages.

Looking ahead

Inflation and central banks’ tightening plans should continue to drive G-10 forex, but as we enter 3Q, growth and recession considerations could take a central role for the dollar. And although the currency may be overvalued, this isn’t enough reason to give up on the buck altogether, as there is still too much macro, earnings and geopolitical uncertainty to abandon defensive views.

Esty Dwek, CIO

Trade Of The Week: Are USD Bulls Throwing In The Towel?

The mighty dollar has been an unstoppable force in 2022, flattening everything in its path.

But back in August, we questioned whether the king of the currency markets was losing its grip on the FX throne after the Dollar Index (DXY) punched above 109.14. Our argument was based on reduced bets over how aggressive the Fed will be on rate hikes and signs of easing inflationary pressures.

We were thoroughly humbled after USD bull’s stepped into higher gear, pushing the DXY to a fresh 20-year high beyond 110.00

There was also some action on the equally weighted dollar index which respected a bullish trend, pushing prices above the previous 2022 high of 1.21840.

Fast forward to today, king dollar looks shaky.

It is safe to say that it lost momentum last week and has stumbled into the new week under selling pressure. The greenback has weakened against most G10 currencies month-to-date and could extend losses despite the recent hawkish comments from Fed officials including Jerome Powell.

With inflation cooling in the US economy, this could encourage the Fed to drop its aggressive stance toward higher rates. If such becomes reality, dollar bears may receive the thumps up to enter the scene – dragging both the DXY and equally weighted USD index lower.

As we questioned roughly back in August, are dollar bulls throwing in the towel or just taking another break before ramping up the momentum in Q4? Some clues may be offered this week in the form of the US inflation figures among other key reports.

The Low Down…

Traders are predicting an 88% probability of a 75-basis point rate hike in September.

These expectations were reinforced by comments from Federal Reserve Chairman Jerome Powell who reaffirmed the need to fight soaring inflation. Hawkish comments by Fed officials last Friday also boosted Fed hike bet, making the jumbo rate hike this month almost a done deal.

Interestingly, the greenback has tumbled despite the Fed expected to hike rates by 75 basis points for the third time in a row. Fed hawks are clearly in the building while strong US economic data initially supported expectations that the US central bank would not be slowing the pace of hike anytime soon. However, US inflation likely slowed for a second month in August thanks to falling gas prices. While this may not be enough to derail the Fed from firing another monetary bazooka this month, it may impact the central bank’s decision in November and December.

The Week Ahead…

This could be another wild week for the dollar due to the pending US economic reports.

On Tuesday, the latest inflation figures will be published which are expected to show consumer prices cooling 8.1% year-on-year in August. This would be lower than July 8.5% print and would mark two straight months of easing in the headline annual print. Should the report match expectations, this could allow the Fed to drop its aggressive approach toward rate hikes – resulting in a weaker dollar.

It will be wise to keep an eye on the core CPI annual print which is expected to rise 6.1% – which will be the highest level since April. The core inflation does not include food and energy prices in the calculation because of volatility.

Much attention will be directed towards the weekly initial jobless claims, August retail sales, and industrial production figures on Thursday which could provide further insight into the health of the US economy. A strong set of reports may reinforce rate hike bets which is dollar positive, while a negative set of reports could dampen aggressive rate hike expectations – dragging the dollar lower.

Friday offers the US consumer sentiment for September. Consumer sentiment was revised higher to 58.2 back in August and is expected to hit 60 this month. A positive figure could provide USD bulls a helping hand before the week comes to an end.

Time For Dollar to Tumble?

After failing to secure a weekly close above 1.2184, the equally weighted dollar index could be preparing to tumble lower.

Prices remain under pressure on the weekly charts with a solid breakdown below 1.1900 opening a path toward 1.1700 and 1.1600, respectively. Should 1.1700 prove to be reliable support, a rebound back towards 1.1900 could be a possibility.

For more information visit FXTM.

Treasury Yields Rise, Dollar Index Closes Above 110 Pressuring Gold Lower

Is The U.S. Dollar Really Getting Stronger?

Well before the Federal Reserve enacted its first interest rate hike in March the dollar has been on a dynamic upside surge. In July 2021 the dollar index traded to a low of 89.45 and in just over a year moved to a 20-year high with the dollar index currently trading above 110. When analysts talk about dollar strength it is a little misleading on the surface.

US Dollar Index

The dollar has lost value and continues to lose value in terms of its buying power. With inflation running over 8% the cost of goods and services continues to mean that the United States dollar has less buying power than it did a year ago, five years ago, or 20 years ago.

The dollar index’s strength represents the dollar as it relates to the basket of six currencies it is paired against. Within this foreign currency basket, certain ones carry more weight. The Eurodollar for example accounts for 56.7% by far the largest component of the index. The Japanese yen is weighted at 13.6%, the British pound at 11.9%, the Canadian dollar at 9.1%, the Swedish krona at 4.2%, and the Swiss franc is weighted at 3.6%.

Because the vast majority of countries have been devaluing their fiat currency by creating excessive monetary supplies, the dollar has been depreciating less than the other currencies it is paired against. So, the term “dollar strength” is simply a measurement of foreign-exchange values of the U.S. dollar when compared against the foreign currencies contained in the dollar index.

As the U.S. yield of debt instruments such as 30-year Treasury Bonds or 10-year Treasury Notes rises a byproduct is that it moves the dollar index higher. That is exactly what we have been seeing as the Federal Reserve continues to raise rates aggressively.

Gold and U.S. Dollar Today

Gold monthly chart

As of 6:10 PM EDT gold futures basis, the most active December 2022 Comex contract is fixed at $1712.80 which is a net decline of $9.80 or – 0.56%. Concurrently the dollar index is currently up 71 points or 0.65% and fixed at 110.22. This means that there was fractional buying in gold today however, a strong dollar accounted for any fractional gains from buyers bidding gold higher and the totality of today’s $9.70 decline in gold.

Today’s high of 110.55 is the highest level in the dollar index in the last 20 years. On a technical basis, there are no strong areas of resistance between 110 and 120 which is the highs the dollar ran to in 2001.

At some point, the dollar will retrace but as long as the Federal Reserve continues to raise interest rates higher U.S. debt yields will rise. Higher yields will certainly continue to be highly supportive of dollar strength.

For those who would like more information simply use this link.

Wishing you as always good trading and good health,

Gary S. Wagner

How Does the US Dollar Typically Fare in September?

DXY Historical Performance in September

Since 2017, this month has seen an average monthly gain of 0.9% for DXY, second only to February’s 0.99% average climb.

Here’s how the greenback has fared historically against its major peers over the past five Septembers (2017-2021):

  • USDJPY: The Japanese Yen is typically the worst-performing DXY constituent for the month.
    JPY sees its largest monthly drop against the US dollar for the year in September, at a whopping average of 1.43%!
    That’s far higher than second-placed June’s 0.86% monthly decline
  • EURUSD: Euro typically weakens against the US dollar this month by 1.06% on average.
    The shared currency’s woes in recent years are in stark contrast to the longer-term context, with the world’s most-traded currency pair enjoying an average September gain of 0.60% over the past 30 years.
  • GBPUSD: The Pound has had mixed fortunes, with a negligible drop of just -0.03% on average.
    The Septembers of 2017-2019 registering monthly gains that offset the monthly declines over the past two straight Septembers.

Note that EUR and JPY are the two largest constituents of the benchmark Dollar index, making up a combined 71.2% of the DXY.

Here are the weightings of the currencies that make up the benchmark DXY:

  1. Euro (EUR) = 57.6%
  2. Japanese Yen (JPY) = 13.6%
  3. British Pound (GBP) = 11.9%
  4. Canadian Dollar (CAD) = 9.1%
  5. Swedish Krona (SEK) = 4.2%
  6. Swiss Franc (CHF) = 3.6%

Hence, the seasonal declines for EUR and JPY are enough to offset Sterling’s relatively resolute performance in recent Septembers, pushing the DXY up higher.

US Dollar Forecast for September

Now onto a forward-looking note, this month is set to be no different from the 5-year trend.

The US dollar is expected to register further gains in September 2022, even as DXY now trades around its highest levels in 20 years.

US Dollar Index daily chart

And here’s what markets are forecasting may happen for the US dollar versus its major peers by the end of this month:

  • EURUSD: 59% chance of hitting 0.985
  • USDJPY: 70% chance of reaching 141.0
  • GBPUSD: 87% chance of touching 1.15

For brevity’s sake, we shall keep the fundamental outlooks for these respective major currencies for future articles (do keep checking our Daily Market Analysis page for the key events and reasons that move FX markets).

Suffice to say that, as we enter this new month, it’s rather evident from a fundamental perspective that the US dollar is at least set to remain well-supported in the lead up to Q4, at the expense of the rest of the FX world.

The Dollar Index at Its Highest Level Since 2002

Once again it has hit an almost new high of 2022 at 108.85 (at the time of writing), which is just shy of the 109.14 recorded on July 14th. The last time we saw numbers like these was back nearly 20 years ago in December 2002, when the dollar was performing extremely strongly relative to most other currencies, and was just shy of 119 at its peak.

Daily chart of the Dollar Index (September 2022) – Source: ActivTrader platform

So what’s the driving force behind the increase in value this year? Will it go higher? Let’s take a look at some of the background and stats for the USDX.

What Is The Dollar Index?

The USDX was originally introduced in 1973 by the U.S Federal Reserve, during that time it included the German mark, Dutch glider, French franc, Italian lira, Belgian franc, Swiss franc, Japanese yen, Canadian dollar, British pound, and the Swedish krona, until it was adjusted for the first and only time in 1999 when the Euro came into use and replaced some of the previous currencies.

The collection of currencies that remain in the index is generally thought of as a representation of the most significant U.S trading partners, and the underlying point of the index itself is to measure the value of the U.S dollar against those currencies.

The USDX has had since its inception, as it does now, a base of 100, and throughout its history has experienced many highs and lows depending on a variety of factors. If the index value goes above 100, then that is suggestive of an appreciation of the USD relative to the other six currencies. If the index is losing strength against the other currencies then it will be below 100. In 1984, the USDX hit a record high of almost 165. Conversely, 2007 saw the index drop to a low of nearly 70 at the beginning of the financial crisis.

It can be affected by a myriad of factors, mostly macroeconomic in nature; inflation, deflation, interest rates, economic growth or lack thereof, supply and demand, and major world events, among others. Any factor that would influence each individual currency in the index and/or the USD can affect the overall USDX.

It’s also really important for traders to take some notice of the weightings given to the currencies within the index, as price movements on one currency, like the Swiss Franc, for example, will have far less significance than if the same movements were to occur with the Euro. They’re not close to being on equal footing within the index, so the impacts would be different.

The weighting given for each currency is as follows:

  • Euro (57.6%)
  • Japanese yen (13.6%)
  • British pound (11.9%)
  • Canadian dollar (9.1%)
  • Swedish krona (4.2%)
  • Swiss Franc (3.6%)

Why Has the Dollar Index Recently Reached New Highs?

Slowly over the last few months, amid numerous rate hikes by the Federal Reserve, the US dollar has been rising. Policymakers have cautioned that the country’s difficulties with soaring inflation will continue to be met with aggressive tightening of monetary policy over the coming months, regardless of a short recession as a likely side effect.

Mildly positive economic data in recent weeks has given many experts reason to question whether the Fed can start to reduce the rate of hikes at the coming meeting, with Reuters reporting recently that a poll of economists indicated that a move of 50 basis points was now slightly more feasible than the previously expected 75 basis points move for the Fed’s next meeting in September.

Fed Chair Jerome Powell, who will be present at the Jackson Hole symposium this year on August 25th-27th, will be updating the market on his views of the ongoing situation with the economy and the Fed’s role in stabilizing inflation. The economic event, located in Jackson Hole, Wyoming, United States, is closely followed by traders, as statements from prominent central bankers, leading financial players, ministers and academics can be impactful on stocks and currency prices.

In addition to conditions in the U.S, the euro has hit fresh lows this month after Russia declared that there would be a three-day closure of the Nord Stream 1 pipeline at the end of August, which is the main supply of gas to the Eurozone. This puts further pressure on the already strained situation, with energy prices in the region skyrocketing and inflation continuing to soar.

How to Take Advantage of the Dollar Index

There are a number of ways to trade the USDX by using derivative products for example, such as contracts for difference, spread bets, or futures, and it’s also available as part of some ETFs and mutual funds.

Using CFD with regulated brokers like ActivTrades allows the trader to utilize margin trading to take advantage of price movements heading upwards (long positions), as well as price movements heading downwards (short positions).

Some traders use the index as a means to hedge against any downside risk with the USD, or to speculate on the dollar’s movement against the other major currencies as well. When the outlook is unclear regarding the movements of the U.S. dollar, the USDX can generally provide a clearer picture.

However you choose to invest, and the financial products you prefer to use, it’s important to follow your overall trading strategy with strict money management rules, and only invest money you’re prepared to lose.

Thursday Special: My Trading Week

Before we proceed, I know some of you are wondering what is going on here. Well, I have hijacked the Thursday 101 slot to share my thoughts and personal experiences with markets this week!

While this may not follow the normal style of our market reports, we still aim to provide key insight and information on market themes complemented with some trading setups to watch out for.

Game plan #1 – USD Hunting Gone Wrong

I marched into the trading week heavily equipped with the fundamental knowledge and technical weapons to hunt dollar bulls. With signs of easing inflationary pressures in the United States fuelling speculation around the Fed adopting a less aggressive approach towards rates, the dollar looked like an easy tasty meal. However, the greenback drew ample strength from weak Chinese economic data on Monday – eventually trampling all obstacles and G10 currencies in its path.

The bearish dollar setup I had in mind was blown out of the water. Instead of the Dollar Index (DXY) respecting the daily bearish channel, prices pushed above 106.00, signalling an incline back towards 107.30.

The same could be said for the equally-weighted dollar index which blasted back above 1.1700. Prices seem to be finding resistance around the 50-day SMA. It will be interesting to see whether this level limits further upside gains.

Game plan # 2 – If You Can’t Beat Them…Join Them

After witnessing the dollar’s rebound on Monday, I decided to hitch a ride with bulls on Tuesday.

The EURUSD snatched my attention as prices tumbled back below 1.0200. Even though the currency pair remains in a range, the path of least resistance points south with 1.0100 acting as the first level of interest. Looking at the current price action, we are not expecting any fireworks for the rest of the week. But bears seem to be creating a foundation for a steeper decline in the week ahead.

Game plan #3 – Inflation Heartache Boost BoE Hike Bets

On Wednesday morning I felt nauseous and uneasy after official data revealed that UK inflation rose 10.1% in July. As the inflation menace causes havoc across the UK economy, households are feeling the squeeze. Everything from the price of food, energy, and services is increasing dangerously. Yesterday evening I witnessed a man argue with a shop owner over the price of bread and this morning I found myself in a heated conversation with my energy provider.

Rising inflation will most likely force the BoE to aggressively raise interest rates but will also fuel uncertainty over the UK’s economic outlook. Looking at the GBPUSD, it remains in a range on the daily chart with support at 1.2000. Best to revisit this next week when more life returns to the FX space.

Game plan #4 – Riding the Volatile Yen Wave

Hats off to my intraday traders that were able to tame the Yen beast this week.

The EURJPY and GBPJPY were untamed and ready to dish out punishment to any trader unprepared. Both tumbled on Monday, only to experience a sharp rebound on Tuesday and Wednesday! We can see some resistance around 138.00 for the EURJPY and 164.00 for the GBPJPY. Should these levels hold, the currency pairs could resume their descent in the new trading week.

Game plan #5 – Classic Breakdown on Gold

The last time gold secured a daily close below $1770 was at the start of the month. After flirting within a range for almost three weeks, it looks like the precious metal is ready to move lower. Interestingly, the precious metal somewhat ignored the minutes from the Fed’s July meeting.

Policymakers saw inflation as a significant risk to the economy and indicated they would not pull back on rates until inflation came down. With inflation in the United States cooling to 8.5% in July, traders have cut bets over how aggressive the Fed will be on rates. In fact, markets are currently pricing in a 47% probability of a 75bp rate hike in September.

Talking technicals sustained weakness below $1770 could open the doors towards $1752 and $1724, respectfully.

For more information visit FXTM.

Trade Of The Week: Are Dollar Bulls Running On Empty Fumes?

Dollar bulls dominated the FX space during the first half of 2022, trampling any obstacles that came their way. G10 currencies were practically flattened by the greenback’s might with the pound shedding 10% and yen over 15%.

But the scales of power seem to be veering in favour of bears in Q3 as the fundamental drivers shift. This can be reflected in the currency’s mixed performance since the start of July.

After reaching its highest level since mid-2002 back in July, the Dollar Index (DXY) has found itself vulnerable to losses thanks to profit-taking. Reduced bets over how aggressive the Fed will be on rate hikes and signs of easing inflationary pressures also capped upside gains.

Taking a quick look at the equally weighted dollar index, prices staged a rebound this morning as disappointing data from China fuelled global recession fears. Nevertheless, the trend still favours bears due to the consistently lower lows and lower highs.

With inflation cooling in the largest economy in the world and investors cutting rate hike bets, USD bulls may be in trouble. However, recession fears and geopolitical risks could send investors rushing toward the dollar which acts as a beacon of safety in times of uncertainty.

So, are dollar bulls are running on empty fumes or taking a break before switching to higher gear? While we may not get the answer this week, the pending FOMC meeting minutes, US economic data, and speeches from Fed officials could offer fresh insight.

The Low Down…

There were three major drivers behind the dollar’s appreciation this year.

  1. Interest rates
  2. Strength of the US economy
  3. Dollar’s safe-haven status

The Fed’s aggressive approach towards rising interest rates in the face of soaring inflation sent the dollar rallying as rate differentials widened against other currencies. As investors looked at the strength of the US economy, relative to others this also boosted appetite for the greenback. Lastly, geopolitical risks, global growth concerns, and overall uncertainty sent market players rushing toward the world’s reserve currency.

Fast forward to today, signs of easing inflationary pressures have prompted investors to cut bets on how aggressive the Fed will be in raising interest rates. The latest CPI figures revealed inflation cooled 8.5% in July compared to the 8.7% expected and a significant drop from the 9.1% increase in June.

In regards to the US economy, it contracted for the second straight quarter in Q2, signalling an unofficial start of recession, further dampening appetite for the dollar. Given the unfavourable macroeconomic environment and geopolitics at play, investors remain cautious and this could result in increased appetite for the safe-haven dollar. All in all, when considering how 2/3 of the major drivers powering the dollar have weakened, this could encourage bears to pounce.

The Week Ahead…

It could be a volatile week for the dollar thanks to the pending US reports and speeches from Fed officials.

However, all eyes will be on the Federal Reserve meeting minutes on Wednesday. This will be closely scrutinized by investors for any fresh clues and insight into what policymakers were thinking when rates were hiked by 75 basis points for a second straight meeting. If the minutes sound hawkish, this could offer the dollar some support.

On the flip side, any hint of doves may encourage some fresh dollar weakness. It will be wise to keep an eye on the US retail sales report for July published mid-week and speeches by Kansas City Fed President Esther George and Minneapolis Fed President Neel Kashkari on Thursday.

Dollar to Resume Decline?

After breaking out of the weekly bearish channel, the equally weighted dollar index could be gearing for steeper declines.

Prices turned bearish after securing a solid weekly close below 1.1700. Sustained weakness under this level could trigger a selloff towards 1.1380.

Should 1.1700 prove to be reliable support, a move back towards 1.1900 could be on the cards.

On the daily charts, prices punched higher this morning thanks to fundamental forces but the technical picture still favours bears. A move back below 1.1700 could suggest a decline towards 1.1630 and 1.1450. Should 1.1700 prove to be reliable support, prices may test the 50-day Simple Moving Average and 1.1950, respectively.

For more information visit FXTM.

Sweden, Norway Currencies Eye Multi-Year Highs vs Euro: Reuters Poll

Sweden and Norway recently ended almost all remaining social restrictions amid a high uptake of COVID-19 vaccines and a corresponding drop in infections, allowing businesses to thrive.

After plunging when the coronavirus hit last year, the currencies have recovered to trade slightly stronger against the euro than their pre-pandemic levels. They will continue to rise, but the likely scope of gains is more limited, the poll showed.

Norway’s crown has rallied about 6% since late August to trade at around 9.94 against the euro and could move to 9.83 in the coming year, the poll showed, which would be its strongest level since January 2020.

Analysts attribute the crown’s lift in recent weeks to hawkish monetary policy and a surge in the price of Norway’s oil and gas exports.

Norges Bank last month raised rates for the first time since 2019 and plans four more hikes over the coming 15 months, with the next tightening pencilled in for December.

But the often-volatile Norwegian currency is also at risk of periods of decline and is forecast to be weaker than its current level at the end of 2021 before rising again next year.

“NOK is no safe haven in troubling times and could easily weaken if sentiment in markets sours,” Nordea Markets cautioned.

In Sweden, where the currency has weakened slightly against the euro this year, the crown is expected to make gains over the coming 12 months to hit its strongest level since early 2018, the poll showed.

The Riksbank has held its benchmark repo rate at 0% and expects to keep it there for several more years despite strong economic recovery and above-target inflation.

Nonetheless some economists see the rebound in the Swedish economy as an opportunity for the central bank to tweak its overall monetary policy approach in 2022.

“The stars are starting to align behind our view that policymakers will start to allow the balance sheet to contract next year,” Capital Economics said in a recent note to clients.

The Reuters poll predicted the Swedish currency would make gains of around 2.5% against the euro to trade at around 9.92 one year from now, the median forecast showed.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Terje Solsvik in Oslo; polling by Prerana Bhat, Sarupya Ganguly and Indradip Ghosh in Bengaluru; Editing by Jonathan Cable, Kirsten Donovan)

U.S. Dollar Slides for 2nd Day, But Outlook Stays Upbeat

U.S. 10-year Treasury yields were last at 1.484%, down nearly six basis points. For the week, the dollar index posted its largest percentage gain since late August, as investors looked to the Federal Reserve’s reduction of asset purchases in November and a possible rate hike late next year.

Cautious market sentiment due to COVID-19 concerns, wobbles in China’s growth and a Washington gridlock ahead of a looming deadline to lift the U.S. government’s borrowing limit has lent support to the dollar, seen as a safe-haven asset.

“The more hawkish stance appears to have been the key factor driving the dollar higher in late September,” said Marc Chandler, chief market strategist, at Bannockburn Global Forex.

“However, more immediately, fiscal policy is the focus, though investors appear to be looking through it, as many find it inconceivable that the U.S. would default on its debt,” he added.In afternoon trading, the dollar index slid 0.3% to 94.046, having gained 0.8% this week, the largest weekly rise since late August.

Friday’s batch of U.S. data was mixed, adding to dollar weakness ahead of the weekend. U.S. consumer spending increased more than expected in August, posting a 0.8% rise, but consumption was weaker than initially thought in July, dipping 0.1% instead of gaining 0.3%. Inflation remained elevated, but not by much.

Core inflation as measured by the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, was up 0.3% in August, unchanged from previous month. In manufacturing, data was more upbeat. The Institute for Supply Management (ISM) said its index of national factory activity increased to a reading of 61.1 last month from 59.9 in August. In other currencies, the euro rose 0.1% to $1.1595, falling about 1.1% for the week, its biggest percentage fall since mid-June.

The yen bounced back against the dollar from a 19-month low overnight, with the greenback last down 0.2% at 111.105 yen. Commodity currencies rallied against the U.S. dollar on Friday as well. The Australian dollar gained 0.6% to US$0.7270 and slumped 3.6% in the third quarter – the worst performance of any G10 currency against the dollar – as prices for Australia’s top export, iron ore, fell sharply. Sterling was also an underperformer last quarter, dropping 2.5%, and posting its worst week in more than a month, amid growing supply chain problems. [GBP/] Sterling was last up 0.6% though at $1.3552, just above a 9-month low at $1.3516.

In cryptocurrencies, bitcoin rallied to a nearly two-week high of just under $48,000. It was last up 9.4% at $47,902. Analysts cited seasonal factors, with the fourth quarter typically viewed as a bullish period for digital assets.

Smaller coins ether and XRP, which tend to move in tandem with bitcoin, were up nearly 10% at $3,294 and 8.2% at $1.0299, respectively.

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Currency bid prices at 3:17PM (19:17 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 94.0370 94.3120 -0.29% 4.508% +94.3950 +93.9850

Euro/Dollar $1.1596 $1.1578 +0.16% -5.09% +$1.1607 +$1.1564

Dollar/Yen 111.0950 111.2800 -0.16% +7.53% +111.4850 +110.9050

Euro/Yen 128.82 128.82 +0.00% +1.50% +129.0400 +128.5600

Dollar/Swiss 0.9305 0.9317 -0.11% +5.19% +0.9337 +0.9283

Sterling/Dollar $1.3555 $1.3477 +0.59% -0.78% +$1.3575 +$1.3434

Dollar/Canadian 1.2633 1.2685 -0.41% -0.79% +1.2738 +1.2628

Aussie/Dollar $0.7271 $0.7227 +0.62% -5.48% +$0.7276 +$0.7193

Euro/Swiss 1.0791 1.0784 +0.06% -0.15% +1.0808 +1.0773

Euro/Sterling 0.8554 0.8593 -0.45% -4.29% +0.8623 +0.8545

NZ $0.6946 $0.6897 +0.72% -3.26% +$0.6951 +$0.6879

Dollar/Dollar

Dollar/Norway 8.6125 8.7400 -1.41% +0.35% +8.7820 +8.6160

Euro/Norway 9.9891 10.1205 -1.30% -4.57% +10.1728 +9.9867

Dollar/Sweden 8.7412 8.7585 -0.08% +6.66% +8.7878 +8.7392

Euro/Sweden 10.1379 10.1460 -0.08% +0.61% +10.1755 +10.1374

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Ritvik Carvalho in London; Editing by Nick Macfie, Chizu Nomiyama and David Evans)

U.S. Dollar Slips From 1-Year High on Weak Data, Consolidation

The greenback overall has been supported by the spike in U.S. Treasury yields amid expectations the Federal Reserve will taper its monetary stimulus beginning in November even as global growth slows.

Thursday’s economic data, though, dented some of the dollar’s strength.

U.S. initial jobless claims rose for a third straight week to 362,000 for the period ending Sept. 25, data showed. Economists polled by Reuters had forecast 335,000 jobless applications for the latest week.

That said, another report confirmed that U.S. economic growth accelerated in the second quarter, at a 6.7% clip, thanks to pandemic relief money from the government, which boosted consumer spending.

“Even if the U.S. dollar falls back a bit further in the near term, we expect it to resume its recent rally in due course,” Joseph Marlow, assistant economist at Capital Economics, wrote in a research note.

“Although long-term yields have risen in most major economies, U.S. bond yields have increased by more than most and, importantly, been driven in large part by higher real yields, reflecting expectations of tighter monetary policy.”

The dollar index, which measures the currency against a basket of six rivals, hit 94.504, its highest since Sept. 28 last year. It was last down 0.2% at 94.199.

For the month, the dollar ended up 1.7%, its second straight monthly gain. For the third quarter, the dollar rose 2%.

Marc Chandler, chief market strategist at Bannockburn Forex, in a research note wrote that “a consolidative tone is evident” after the dollar’s surge on Wednesday.

The dollar’s recent gains came despite a political standoff in Washington over the U.S. debt ceiling that threatens to shut down much of the government.

Yields on the benchmark 10-year Treasury note stood at 1.524%, holding near a three-month high reached Tuesday of 1.567%.

The dollar hit 112.07 yen, the highest since February 2020. It was last down 0.5% at 111.36 yen, its biggest daily percentage fall since mid-August.

For the month of September, however, the dollar posted a 1.2% gain versus the yen, and a more modest 0.4% rise for the third quarter.

The euro was down 0.1% at $1.1586, after earlier hitting $1.1563,its lowest since July 2020.

Europe’s single currency was down 1.9% against the dollar for the month and 2.2% weaker for the third quarter.

The risk-sensitive Australian dollar firmed 0.8% to US$0.7232, after plummeting 0.9% overnight, as iron ore prices rallied ahead of the Golden Week holiday in Australia’s top trading destination China.

A slight improvement in overall risk sentiment after days of gloom was seen in the cryptocurrency markets, as bitcoin rose 5.7%% to $43,929 and ether bounced 6.2% to $3,028. Both coins are down between 20% and 27% from their September peaks.

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Currency bid prices at 3:20PM (19:20 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 94.1870 94.3440 -0.15% 4.674% +94.5040 +94.1090

Euro/Dollar $1.1588 $1.1598 -0.09% -5.16% +$1.1610 +$1.1563

Dollar/Yen 111.3700 111.9750 -0.54% +7.79% +112.0750 +111.3200

Euro/Yen 129.04 129.82 -0.60% +1.67% +129.9500 +128.8100

Dollar/Swiss 0.9323 0.9346 -0.22% +5.41% +0.9368 +0.9322

Sterling/Dollar $1.3482 $1.3427 +0.42% -1.31% +$1.3517 +$1.3417

Dollar/Canadian 1.2656 1.2753 -0.78% -0.64% +1.2763 +1.2631

Aussie/Dollar $0.7235 $0.7174 +0.86% -5.94% +$0.7257 +$0.7176

Euro/Swiss 1.0803 1.0839 -0.33% -0.04% +1.0847 +1.0802

Euro/Sterling 0.8594 0.8636 -0.49% -3.84% +0.8643 +0.8578

NZ $0.6912 $0.6866 +0.71% -3.72% +$0.6921 +$0.6860

Dollar/Dollar

Dollar/Norway 8.7315 8.7860 -0.55% +1.76% +8.8295 +8.7140

Euro/Norway 10.1196 10.1740 -0.53% -3.32% +10.2315 +10.1054

Dollar/Sweden 8.7513 8.8067 -0.72% +6.77% +8.8118 +8.7383

Euro/Sweden 10.1406 10.2141 -0.72% +0.64% +10.2167 +10.1320

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Ritvik Carvalho in London; Editing by William Maclean, Hugh Lawson and Jonathan Oatis)

Dollar Advances to One-Year High; U.S. Debt Ceiling Impact Muted

The greenback also fared well despite an impasse in Washington over the U.S. debt ceiling that threatened to plunge the government into a shutdown.

The world’s largest reserve currency, seen as a safe-haven bet at times of market stress, has strengthened in recent days as investors instead focused on fears of a global slowdown, a rise in energy prices and higher U.S. Treasury yields.

Traders are also concerned that the Fed will start to withdraw policy support just as global growth slows.

“Fed has sounded the starting gun on monetary policy normalization,” Kit Juckes, macro strategist at Societe Generale, wrote in his latest research note.

“As the U.S. escapes the interest rate zero-bound, leaving the Eurozone and Japan behind, the global savings glut is set to be drawn towards the dollar, which can outperform the majority of other currencies in the coming year, and may start its move earlier than we expected,” Juckes added.

The dollar index – which measures the U.S. currency against a basket of six major currencies – rose for the fourth consecutive day, to 94.435, its highest since late September of last year. It was last up 0.7% at 94.404.

Erik Nelson, macro strategist at Wells Fargo in New York, sees a further 2% to 3% upside in the dollar index.

The greenback was also unfazed, even as U.S. Senate Republicans on Tuesday blocked a bid by President Joe Biden’s fellow Democrats to head off a potentially crippling U.S. credit default, with federal funding due to expire on Thursday and borrowing authority on around Oct. 18.

The Senate could vote on Wednesday or Thursday on a bipartisan resolution to fund federal operations through early December, Senate Majority Leader Chuck Schumer said.

The euro was among the currencies to lose ground, falling below the $1.16 level, the lowest since late July 2020. It last traded down 0.8% at $1.1592.

The yen showed little reaction to the election of Fumio Kishida as leader of Japan’s ruling Liberal Democratic Party, which put him on course to become the country’s next prime minister.

The yen, the currency most sensitive to U.S. yields as higher rates can attract flows from Japan, touched an 18-month low against a resurgent dollar. The dollar climbed as high as 112.04, its strongest level since late February last year, and was last up 0.4% at 111.99 yen.

The dollar also rose to a more than five-month high of 0.9355 francs. It was last up 0.7% at 0.9351.

Currency traders also took note of comments from major central bankers on Wednesday, who were panelists at a European Central Bank forum in Sintra, Portugal.

Fed Chairman Jerome Powell, European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey said they were keeping a close eye on inflation amid a surge in energy prices and the persistence of production bottlenecks.

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Currency bid prices at 4:06PM (20:06 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 94.3940 93.7060 +0.74% 4.904% +94.4350 +93.6710

Euro/Dollar $1.1593 $1.1684 -0.77% -5.12% +$1.1690 +$1.1590

Dollar/Yen 111.9850 111.5150 +0.42% +8.38% +112.0450 +111.2100

Euro/Yen 129.83 130.25 -0.32% +2.29% +130.4700 +129.6800

Dollar/Swiss 0.9350 0.9293 +0.65% +5.73% +0.9355 +0.9281

Sterling/Dollar $1.3419 $1.3536 -0.88% -1.80% +$1.3554 +$1.3412

Dollar/Canadian 1.2756 1.2686 +0.56% +0.18% +1.2774 +1.2670

Aussie/Dollar $0.7176 $0.7240 -0.86% -6.69% +$0.7264 +$0.7171

Euro/Swiss 1.0839 1.0855 -0.15% +0.30% +1.0862 +1.0822

Euro/Sterling 0.8639 0.8629 +0.12% -3.33% +0.8658 +0.8613

NZ $0.6862 $0.6960 -1.39% -4.43% +$0.6962 +$0.6861

Dollar/Dollar

Dollar/Norway 8.7750 8.6605 +1.45% +2.32% +8.7880 +8.6460

Euro/Norway 10.1720 10.1219 +0.49% -2.81% +10.1851 +10.0980

Dollar/Sweden 8.8068 8.7334 +0.05% +7.45% +8.8122 +8.7233

Euro/Sweden 10.2104 10.2055 +0.05% +1.33% +10.2175 +10.1816

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting Iain Withers in London; Editing by Angus MacSwan, Kirsten Donovan, Philippa Fletcher, Will Dunham and Jonathan Oatis)

Evergrande Nerves Weigh on Offshore Yuan, Dollar Edges Up on Safety Bid

Market sentiment has been rattled by the potential contagion from Evergrande, which is trying to raise funds to pay a host of lenders, suppliers and investors. A deadline for an $83.5 million interest payment on one of its bonds is due on Thursday, and the company has $305 billion in liabilities.

On Thursday, the yuan strengthened to its highest level in three months at 6.4226 per dollar before starting to reverse as Evergrande’s woes worsened. The move sharpened on Monday after warnings from Chinese regulators that the company’s insolvency could fuel broader risks in the country’s financial system if not stabilized.

Analysts at Wells Fargo said on Monday they expect the dollar to reach 6.60 per yuan within the next month. The offshore Chinese yuan last weakened versus the greenback at 6.4839 per dollar.

“We are seeing a classic flight to safety in the dollar until we get some sense of clarity on whether or not it is going to be an orderly or disorderly resolution to Evergrande,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington DC.

“We were likely to see a continuation of the decline we’ve seen in risk assets going into this week and you throw in Evergrande and it has really unsettled the markets.”

The dollar and other safe-haven currencies such as the yen and Swiss franc gained with the risk-off sentiment, which saw Wall Street’s S&P 500 index on pace for its biggest one-day percentage drop 11 months.

The dollar index rose 0.025%, with the euro unchanged at $1.1725.

The dollar has also been gaining ground on expectations the Federal Reserve will begin reducing its monthly bond purchases this year, with the central bank’s policy announcement due on Wednesday.

Aside from the Fed, multiple central banks around the globe will hold policy meetings this week, including those of Sweden, England, and Norway.

The Japanese yen strengthened 0.58% versus the greenback at 109.32 per dollar, while sterling was last trading at $1.3656, down 0.63% on the day.

The Canadian dollar, also a commodity currency that correlates with risk sentiment, weakened to as low as C$1.2895 per dollar, its lowest level in four weeks. It last fell 0.42% versus the greenback at C$1.28 per dollar.

Polling for Monday’s national election in Canada points to an advantage for incumbent Prime Minister Justin Trudeau, but he is unlikely to gain a parliamentary majority.

In cryptocurrencies, bitcoin last fell 7.76% to $43,577.67.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Chuck Mikolajczak; Editing by Bernadette Baum and Cynthia Osterman)

U.S Dollar Bulls Take Charge on Impressive U.S Private Payrolls Report

The greenback rebounded strongly at America’s trading session, heading for its biggest monthly jump since November 2016 by an impressive U.S private payrolls report and a hawkish shift by the U.S. Federal Reserve’s rates outlook at a meeting held early in June.

DXY bulls are also increasingly gathering momentum amid growing concerns over the spread of the Delta virus variant.

The greenback has already posted gains of about 3% in June against a basket of major currencies that include the Euro, Japanese yen, Pound sterling, Canadian dollar, Swedish krona, and Swiss franc partly in the wake of a hawkish U.S Federal Reserve Bank

All eyes are now on Friday’s U.S. Nonfarm Payrolls report for an affirmation of a shift in America’s monetary policy.

Recent macros show U.S. private payrolls surged by more than expected this month by 692,000 jobs.

Though DXY bulls gains got capped around the 92.433 index points on the account that U.S private farm payrolls for the month of May was earlier revised lower to reveal 886,000 jobs added instead of the previously reported 978,000.

Still, some market pundits had earlier predicted private payrolls would rise by 600,000 jobs, further giving DXY bulls enough gas to break temporarily above 92.4 index points.

Consequently, present chart patterns show the greenback continues to consolidate its post-FOMC gains, with the rampaging COVID-19 mutants providing some safe-haven support.

DXY bulls are also riding the price wagon high after recent fundamentals showed U.S. consumer confidence increased this month to its highest level since the pandemic started over a year ago. Such narrative lifted market sentiments on the safe haven currency positively amid expectations for stronger economic growth in the mid-term.

Though some technical indicators pre-empt currency markets might be quite choppy in the coming days amid this month and quarter-end rebalancing flows.

For a look at all of today’s economic events, check out our economic calendar.

Dollar Slides to Multi-Month Lows as Fed Rate Hike Fears Fade

By Stephen Culp

U.S. Treasury yields stalled as market participants grew increasingly confident that the Federal Reserve will hold off on hiking interest rates for the time being, despite worrisome near-term inflation spikes.

“We’re seeing this dollar weakness against numerous pairs and the market is starting to believe the Fed that we’re going to have low interest rates a lot longer,” said Edward Moya, senior market analyst at OANDA in New York.

“That’s going to be bearish for the dollar. You’ll eventually see commodity-based currencies outperforming,” Moya added.

A spate of Fed policymakers are expected to speak this week and the U.S. central bank is due to release the minutes from its April policy meeting on Wednesday, which will be parsed for any signs of a shift in its economic outlook and monetary policy.

“Normally everyone gets excited for the Fed minutes, but these minutes are old,” Moya said. “We had a disappointing payrolls report and very hot CPI and PPI that happened after the meeting, most are focused on the raft of (Fed) speakers.”

The dollar index was last down 0.41% at 89.799.

The progress of COVID-19 vaccine deployment and easing of measures to contain the pandemic has lifted higher-risk currencies that stand to benefit most from economic revival.

For an interactive graphic on worldwide vaccine rollout and access, click here https://graphics.reuters.com/world-coronavirus-tracker-and-maps/vaccination-rollout-and-access.

The euro gained 0.51% to $1.2214, passing its highest level since Feb. 25, and the dollar fell 0.24% to 108.935 Japanese yen.

The British pound, buoyed by the lifting of COVID-19 restrictions, rose past the $1.42 level for the first time since Feb. 24. [GBP/]

“What really has helped the pound is reopening momentum and willingness to become vaccinated,” Moya said. “It’s suggesting (the UK) recovery is going to stick. They’re finally getting on the other side of Brexit.”

Rising oil prices supported the Norwegian crown and helped boost the Canadian dollar to a six-year high. [O/R]

Bitcoin edged higher but remained near the three-month low it hit after Tesla Inc boss Elon Musk dampened enthusiasm for the cryptocurrency over the weekend.

Rival digital currency ether jumped 3.62% to $3,404.

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Currency bid prices at 9:47AM (1347 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index

89.7990 90.1840 -0.41% -0.202% +90.2040 +89.6890

Euro/Dollar

$1.2214 $1.2152 +0.51% -0.03% +$1.2234 +$1.2153

Dollar/Yen

108.9350 109.1750 -0.24% +5.44% +109.2750 +108.8550

Euro/Yen

133.04 132.73 +0.23% +4.83% +133.1600 +132.7000

Dollar/Swiss

0.8969 0.9033 -0.70% +1.38% +0.9035 +0.8961

Sterling/Dollar

$1.4199 $1.4139 +0.43% +3.94% +$1.4220 +$1.4135

Dollar/Canadian

1.2043 1.2068 -0.19% -5.41% +1.2071 +1.2014

Aussie/Dollar

$0.7795 $0.7770 +0.31% +1.31% +$0.7813 +$0.7765

Euro/Swiss

1.0952 1.0974 -0.20% +1.34% +1.0982 +1.0954

Euro/Sterling

0.8600 0.8593 +0.08% -3.77% +0.8609 +0.8582

NZ

Dollar/Dollar $0.7253 $0.7216 +0.51% +1.00% +$0.7271 +$0.7211

Dollar/Norway

8.1985 8.2570 -0.73% -4.55% +8.2580 +8.1795

Euro/Norway

10.0120 10.0345 -0.22% -4.35% +10.0530 +10.0019

Dollar/Sweden

8.2855 8.3285 -0.01% +1.09% +8.3434 +8.2750

Euro/Sweden

10.1219 10.1225 -0.01% +0.45% +10.1486 +10.1170

(Reporting by Stephen Culp; Additional reporting by Ritvik Carvalho; Editing by Paul Simao)