Continuing yesterday’s trend, the United States Dollar starts this morning on the front foot against most major currencies as traders continue to move in a risk-averse direction.
Overview
It seems, at the moment, that both bad news and good news from the larger US economy are proving to be a good thing for USD. Yesterday afternoon news broke that Fitch had downgraded the US credit rating from the top tier of AAA to AA+ after “repeated debt limit standoffs” and the unprecedented third indictment of former President Donald Trump on federal charges, driving demand for the safe haven of the Buck compared with other riskier assets like equities. Other haven currencies like the Japanese Yen are also benefiting from this move – investors are slowly remembering that the US remains the world’s largest economy, and bad news for it isn’t necessarily a good thing for the rest of the world.
Contrasting this dark cloud, however, is the release of ADP private payroll estimates for the month of July, coming in substantially above expectations and further boosting USD as signs of continued economic strength give the Federal Reserve some affirmation that its moves have been the right ones. Though the Fed and the ECB made the same move with similar tones last week, markets like the Fed and the US’s larger economic picture more than those of Europe. Recessionary fears inside the US have fallen substantially, a marked difference from the sour moods of the Eurozone and the UK in particular and keeping the USD strong
What to Watch Today…
- No major economic events are scheduled for today
- Monex USA Online is always open
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GBP ⇓
Pound Sterling this morning is extending its decline against USD, falling an additional half a percent since the US market opened and marking nearly a 4% decline from its high price two weeks ago. Traders have hedged their bets on the Bank of England’s move tomorrow; more are now anticipating a 25 basis point hike rather than 50. The UK’s cost-of-living crisis appears to be easing, but we believe this repricing is driven primarily by the belief that the UK economy is too high-risk to handle another 50-point move from the Bank of England all at once.
JPY ⇑
Japanese Yen gained against the Dollar for the first time in four days this morning on the news of a downgrade of the US credit rating, exhibiting its traditional safe haven characteristics. With both the Bank of Japan and the Federal Reserve meetings last week out of the way of the pair, risk sentiment will continue to be the primary driver of pricing between the two, and as the world holds its breath to see if a recession will materialize, JPY has some upside potential.
