For the fifth straight day, the United States Dollar comes into the morning, gaining against most G10 currencies.
Overview
Fears of a government shutdown in the US continue to drive risk-averse trading, even as Senate negotiators appear to be nearing a deal for short-term spending measures. The Bloomberg Dollar Spot Index (DXY) touched its highest level since November of last year this morning, showing that investors believe USD is the safest place to put their money as fiscal risks abound domestically. Equities are once again set to open lower.
With little on the data calendar for the front side of the week, China’s property sector woes had a rather outsized impact on FX pricing as traders took it to be a larger warning sign on the state of the world’s economic health. Concern clearly spilled over into European trading – both Christine Lagarde and ECB governing council member Villeroy emphasized that the downside risk to the Eurozone’s economy could very well prevent the central bank from being as aggressive as it would like in fighting the region’s ongoing inflation crisis. As Germany teeters on the brink of a technical recession, it appears other nations in the region may soon follow suit, and consumer confidence continues to be quite a bit lower than the same reading out of the US.
The data calendar for this week finally begins to pick up steam on Thursday with the final GDP reading for Q2 from the United States. It’s unlikely that such a release will change the Dollar’s fortunes for the week as, once again, the US finds itself in a better economic position than its peers.
What to Watch Today…
- No major economic events are scheduled for today
- Monex USA Online is always open
GBP ⇓
Pound Sterling this morning looks decidedly less than sterling, heading for its fifth straight day of losses against USD. Markets are continuing to react to the Bank of England’s decision last week to hold interest rates steady. GBP and the BoE are an excellent example of the narrative currently controlling markets – that while the Fed may have a choice whether or not to implement further tightening measures, other central banks’ hands have been forced by economic weakness inside their respective nations and peak interest rates are likely to be quite a bit lower than previously forecast.
JPY ⇑
Japanese Yen, continuing its trend from recent weeks, posted the smallest of gains against the USD this morning after yet another verbal warning from the Bank of Japan on potential intervention. Finance Minister Shunichi Suzuki said he is “watching foreign exchange moves with a high sense of urgency,” but markets remain unconvinced that jawboning is enough. JPY’s very small reaction to his words proves this point, and it’s becoming increasingly likely that the BoJ’s hand will be forced, and real intervention at their next policy meeting may come to fruition.
