FX Rate News

The dollar was set for a fourth straight month of losses on Monday after a U.S. Federal Reserve policy shift on inflation, while the euro was poised to post a fourth month of gains, taking both currencies to levels last seen in 2018.

Investors are adjusting to a speech last Thursday in which Federal Reserve Chair Jerome Powell outlined an accommodative policy change which is believed could result in inflation moving slightly higher and interest rates staying lower for longer.

“Even if U.S. central bankers are likely to be pleased about the interpretation of their measures, it is not good news for the dollar”, Commerzbank analysts commented.

“If one expects the domestic purchasing power of the dollar to be eroded more quickly (as that is what inflation is) it is difficult to assume that it will maintain its purchasing power on the FX market in the long run”, they argued.

“That is why EUR-USD is trading above 1.19, with the dollar index (DXY) trading below 92.50”, they concluded.

Against a basket of currencies the dollar rose 0.1% higher to 92.356 in early trading in Europe and is down 1.2% for the month.

If sustained that would be its worst August in five years and make for the longest run of monthly losses since the summer of 2017.

The euro  was steady at $1.1903 and on track for a 1% monthly gain, which would be its fourth straight month of increases.

With most of London’s traders off on a banking holiday, attention now turns to a handful of Federal Reserve officials due to speak through the week, beginning with Richard Clarida, as they put more flesh on the bank’s new policy framework.

Eurozone inflation data on Tuesday and U.S. payrolls on Friday will also be closely watched.

Earlier the yen  steadied on the view that Japan’s next leader will stay the course on the ‘Abenomics’ economic revival programme.

The yen eased by about 0.4% in Asia to 105.77 per dollar, having climbed as far as 104.195 on Friday in the wake of Shinzo Abe’s resignation as prime minister for health reasons.

Elsewhere trade was choppy as the boost to Asian currencies from a solid expansion in China’s service sector had begun to fade a bit.

The Australian dollar  was down 0.2% after touching a 21-month peak of $0.7381 but remained set to post a fifth straight monthly rise, its best streak in over a decade and a 34% gain from March’s trough.

The New Zealand dollar made a post-COVID high of $0.6749 but also slightly retreated 0.2% thereafter.

China’s yuan hit a 14-month peak of 6.844 to the dollar in offshore trade as investors cheer the services growth rather than fretting about a stalled rebound in manufacturing.

It later abandoned some gains and was last at 6.8556.

The dollar wallowed near its lowest level for the week on Thursday as investors looked for hints from Federal Reserve Chairman Jerome Powell that the central bank might tweak its policy framework to help push up inflation.

Powell is scheduled to address the Fed’s annual central bankers’ conference later in the day, usually held in Jackson Hole, Wyoming, but being conducted virtually this year because of the ongoing Covid-19 pandemic.

Investors are betting the U.S. central bank will introduce a new policy framework to fight persistently low inflation as early as next month.

“If the Fed turns out to be less dovish than many have been thinking, we could see a rally in the dollar,” said Kyosuke Suzuki, director of forex at Societe Generale in Tokyo.

The dollar’s index against six major currencies stood at 92.893, near the weakest level so far this week, and not far off its two-year low of 92.124 touched last week.

Since the start of the pandemic, the Federal Reserve has expanded its balance sheet by as much as about $3 trillion, far more than the European Central Bank and the Bank of Japan.

The euro changed hands at $1.1833, near its highest level so far this week, though few market players expect a clear break from its range so far this week ahead of Powell’s speech.

The dollar yen slipped to 105.97, losing steam after hitting a one-week high of 106.58 on Tuesday.

“A more aggressive Fed policy tends to weaken the dollar, and the broadcasting of this policy change has already been a factor in the recent mild yen strength,” said John Vail, chief global strategist at Nikko Asset Management.

A key focus for the yen is Prime Minister Shinzo Abe’s news conference scheduled for Friday amid rising speculation over his health.

The yen is likely to gain should Abe decide to resign, given perception that aggressive monetary easing with close co-operation between the government and the central bank, dubbed Abenomics, has been one of his trademark policies, traders said.

The British pound stood firm at $1.3211, having gained 0.9% since the start of week, while the Australian dollar was changing hands at $0.7238 up 1.1% so far this week.

The Chinese yuan was at its strong levels since January after data showed a recovery in profits at China’s industrial firms.

The offshore yuan stood at 6.8783 per dollar, its highest level since January 21.

The market appears to have shrugged off the latest signs of rising tension between the two countries.

The United States on Wednesday blacklisted 24 Chinese companies and targeted individuals it said were part of construction and military actions in the South China Sea, its first such sanctions move against Beijing over the disputed strategic waterway.

The dollar held steady against most currencies on Wednesday as traders braced for U.S. data expected to show a slowdown in durable goods orders and a key speech by Federal Reserve Chairman Jerome Powell.

The yuan rose toward a seven-month high after U.S. and Chinese trade officials reaffirmed their commitment to a phase one trade deal, which eased concerns about a diplomatic standoff between the world’s two-largest economies.

The greenback took a hit after data on Tuesday showed U.S. consumer confidence tumbled to the lowest in more than six years due to concerns about coronavirus-induced job losses.

Traders will look to Powell’s speech on Thursday at the annual Jackson Hole retreat to determine what steps the Fed is willing to take to safeguard a fragile economic recovery.

“I expect Powell to use forward guidance to send a dovish message that rates will remain low for a long time, which feeds into dollar weakness,” said Minori Uchida, head of global market research at MUFG Bank in Tokyo.

“You could say we are in a long-term correction of excessive dollar strength.”

Against the euro, the dollar stood at $1.1816 on Wednesday following a 0.4% decline in the previous session.

The British pound bought $1.3138 having risen 0.7% against the dollar on Tuesday.

Sterling has managed to shrug off a lack of progress in trade negotiations between Britain and the European Union.

The dollar bought 0.9090 Swiss franc, close to the lowest in more than five years against the safe harbor currency.

The dollar was locked into a narrow range against the yen, last trading at 106.43.

Powell’s speech at Jackson Hole – held online due to the coronavirus outbreak – is by far the biggest event of the week, but the data calendar leading up to Thursday has been discouraging.

Data later on Wednesday is forecast to show growth in U.S. durable goods orders slowed in July, following from the U.S. consumer confidence report for August, which fell to the lowest since May 2014 – highlighting policymakers’ concerns about the economy.

The onshore yuan rose to 6.9002 per dollar, approaching a seven-month high after Washington and Beijing affirmed their trade deal.

The mood also brightened after Ant Group, Alibaba’s fintech arm and China’s dominant mobile payments firm, filed for a dual listing in Hong Kong and Shanghai to raise as much as $30 billion in what would be the world’s largest initial public offering.

The Australian dollar was little changed at $0.7195 as traders monitor a coronavirus outbreak in the state of Victoria.

The New Zealand dollar last bought $0.6552.

The dollar fell on Monday while European shares and riskier currencies gained, with some analysts attributing the pick up in sentiment to U.S. regulators approving a treatment for COVID-19 patients ahead of the Republican National Convention.

More than 800,000 people around the world have died from the coronavirus, with the death toll in the United States alone surpassing 170,000. On Sunday the country granted “emergency use authorization” for treatment using the blood plasma of patients who have recovered from the disease.

Asian shares strengthened overnight and European indexes opened higher. Riskier currencies such as the Norwegian crown , British pound and Aussie and Kiwi dollars rose versus the U.S. dollar.

The dollar was little changed overnight but fell as markets opened in Europe, down around 0.2% at 92.972 by 1053 GMT. It has lost 0.5% against the basket of currencies so far this month, consolidating losses after falling 4% the month before.

Derek Halpenny, MUFG’s head of research, said that the announcement about blood plasma treatment was likely to have only a short-term impact on sentiment.

“I think investors generally will be relatively sceptical of the news especially coming from Trump between now and the election,” he said.

“There’s obviously a very significant incentive for him to speed up the approvals or big up the emergence of some good news.”

“I think the markets are still relatively positioned for a vaccine being done and dusted by year-end and gradually rolled out in the first half of 2021,” he added. “I think it would take a lot for the markets to price in something more rapid than that.”

In a data-light day, market participants are awaiting the start of the four-day Republican National Convention, at which U.S. President Donald Trump will seek to reboot his struggling election campaign.

The euro was up around 0.3% versus the dollar, at $1.183 .

Last week, the dollar outperformed the euro for the first time since mid-June, as U.S. business activity improved while European business surveys showed the economic recovery faltering.

The euro had previously rallied as the continent controlled the spread of the coronavirus better than in the U.S., and European Union leaders agreed on an EU-wide recovery fund.

France posted a record high in daily post-lockdown infections on Sunday. The health minister on Saturday ruled out a total lockdown but said localised measures could be taken.

Italy also said it was not considering a new lockdown despite a rising number of infections.

“I do think the re-emergence of COVID is going to have a clearer impact on the incoming economic data and certainly the euro gain has been a picture of a more favourable outlook in Europe – not just on COVID but on the policy response and the euro recovery fund etc – but generally that relatively macro story is less compelling,” MUFG’s Halpenny said.

The Australian dollar was up 0.5% versus the greenback at 0.719, little affected by the country’s treasury saying that effective unemployment will climb above 13%.

New Zealand Prime Minister Jacinda Ardern on Monday extended a coronavirus lockdown in Auckland, the country’s largest city, until the end of the week and introduced mandatory mask wearing on public transport across the nation.

The Kiwi dollar did not strengthen as much as other risk currencies, up 0.2% at 0.6554.

ING strategists said the market is also grappling with geopolitical concerns, with the protests in Belarus posing the risk of direct intervention by Russia.

Elsewhere, China’s foreign ministry said it would file a lawsuit against the Trump administration over its ban on Bytedance, the Chinese owners of messaging app WeChat and video-sharing app TikTok.

Bounce or breather?

The U.S. dollar index fell to its lowest in more than two years on Tuesday as the ongoing effects of the Federal Reserve’s stimulus programs weakened the greenback broadly for the fifth consecutive day and lifted U.S. stock indexes to record highs.

Although the dollar often functions as a safe-haven investment in moments of crisis, it has fallen since the Federal Reserve’s intervention into financial markets to maintain liquidity in the midst of the coronavirus pandemic. The Fed’s programs have pushed risk assets to all-time highs and reduced demand for safe-havens, even as economic data has painted a bleak picture of the U.S. recovery.

The dollar index was last down 0.55% at 92.308, having earlier hit a bottom of 92.124, its lowest since May 2018. Against the euro, the dollar also hit its lowest since May 2018 at $1.197.

The dollar was also weaker against the Japanese yen, another traditional safe-haven, having hit a two-week low of 105.27 yen per dollar.

“It’s the Fed, it’s all the liquidity being pumped into the market,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets, about the fall in the dollar.

A fresh rally in tech stocks provided a positive backdrop for markets and drove the S&P 500 index to a record high, topping the last record hit on Feb. 19 and further underlining the disconnect between the stock market and U.S. economic data.

Anderson noted that the Tuesday’s dollar weakness was not the result of any specific data release, but about a move lower that has been gaining momentum.

“Once U.S. dollar momentum becomes entrenched, it’s like trying to turn around an aircraft carrier, it is tough to do. And I think the momentum is entrenched,” he said.

Net bearish bets on the greenback rose to their largest since May 2011 last week, and spot trade in recent days suggests the position has only grown further since. Elsewhere in North America, the Canadian dollar strengthened to $1.315, its best versus the greenback since late January. The move came after Canadian Prime Minister Justin Trudeau appointed his close ally and deputy Chrystia Freeland as finance minister on Tuesday as he revamps pandemic recovery plans.

″(Bill) Morneau has been a very solid finance minister. In a lot of situations, to lose that would be a bit destabilizing. But in this particular instance, Chrystia Freeland has also done a remarkable job with her file,”

The dollar extended its fall to hit fresh lows against a range of currencies on Tuesday, after a triple blow of retreating yields, soft U.S. economic data and a dip in safe-haven demand exerted broad selling pressure.

The yuan firmed to 6.9246 per dollar, hitting a level unseen since March 9, despite the Trump administration flagging a further tightening of restrictions against Chinese tech gear maker Huawei.

Against the Swiss franc, the dollar fell more than 0.1% to fresh 5-1/2 year low of 0.9049.

“The background factor for the moves we’re seeing today is the overall weakness of the dollar,” said Shinichiro Kadota, senior strategist at Barclays.

“And the Swiss franc strengthened because of a euro-led decline in the U.S. dollar since July.”

The greenback is also poised to re-test multi-month or multi-year troughs against the euro, pound and Aussie made earlier in the month.

The euro last sat at $1.1891, just below a recent two-year high of $1.1916.

The Aussie rose 0.12% to $0.7225, near an 18-month top of $0.7242 hit on Aug. 7, as the Reserve Bank of Australia reaffirmed the outlook of steady policy.

The Aussie’s gains were capped by news China had begun an anti-dumping investigation into imports of wine from Australia.

Investors have been relieved by a delay in the review of the U.S.-China trade deal this week, which has left the agreement standing and reinforced a belief the trade relationship can hold even amidst conflict on multiple other fronts.

A fresh rally in tech stocks added to the positive mood, and together with a pullback in U.S. yields and a weak reading in a U.S. manufacturing survey has many traders sticking to their bearish convictions on the dollar.

Net bearish bets on the U.S. dollar grew to their largest since May 2011 last week and spot trade in recent days suggest the position has only grown further since.

“Extended short dollar positions risk a sharp pull back if the dollar downside stalls further, but for now the negatives for the dollar are mostly still in place,” said analysts at Singapore’s OCBC Bank.

“We are reduced to staying in the game while the music is playing.”

On the data front, the New York Fed’s Empire State business conditions index tumbled to 3.7 in August from 17.2 in July – far lower than the 15 points forecast by a Reuters survey.

Delinquency rates for residential mortgages also posted the largest quarterly increase on record.

“A high delinquency rate for an extended period can impair the banking system,” said Commonwealth Bank of Australia currency analyst Joe Capurso.

“An impaired banking system could hold back the U.S. economic recovery like it did in the aftermath of the (2008 crisis),” he said.

The Japanese yen rose back past 106-per-dollar to 105.63 after a 2.6 basis point drop in benchmark U.S. 10-year government bond yields overnight.

The British pound last sat at $1.314 as investors watch the latest round of Brexit negotiations, with the future of London’s financial institutions’ access to the European market in focus.

Against a basket of currencies the dollar sat at an eight-session low of 92.634.

Among G10 currencies, the kiwi was the laggard as New Zealand’s largest city remains under lockdown and anticipation of future monetary easing weighs on the currency.

It last bought $0.6545 and traders said bets on the kiwi dropping had supported the Aussie as investors sought exposure to the Aussie/kiwi cross, which is trading at a two-year peak.

“The move has been one way traffic,” said Chris Weston, head of research at Melbourne broker Pepperstone, who is holding for the ride even though the pair has hit his price target of NZ$1.10 per Aussie.

Review delay

Election delay

The dollar steadied on Friday as a jump in U.S. bond yields and a drag on sentiment from lackluster Chinese economic data put the brakes on a selldown of the world’s reserve currency.

China’s retail sales unexpectedly extended their fall into a seventh month in July and industrial output missed expectations – suggesting bumps in even the world’s most promising rebound.

The mood had the dollar within reach of snapping a seven-week losing streak against the risk-sensitive Aussie, which has settled around $0.7149 and is flat for the week.

Tepid demand in a long-dated U.S. government bond auction on Thursday has also extended a surge in Treasury yields that has drawn some investors – especially from Japan – back to dollars.

The yen is on course for its weakest week against the dollar in two months and is down about 0.9% at 106.84 from last Friday’s close.

The biggest loser has been the kiwi, which was pressured at $0.6538, as the country faces a fresh coronavirus outbreak and after the central bank this week flagged increased bond buying and again mentioned the prospect of negative rates.

“Risk sentiment is slowing down,” said Westpac FX analyst Imre Speizer.

“It’s too early to say the whole (dollar) downtrend is over…but it’s got potential and at the very least it’s putting a cap on the Aussie and kiwi.”

Troubling signs also emerged on the health front in Asia, with 29 new cases in previously virus-free New Zealand prompting an extension of Auckland’s lockdown and the biggest daily jump in new cases in South Korea since March.

Against a basket of currencies the dollar remains 0.2% lower for the week, but it has appeared to arrest a slide that has it about 9.5% below its March peak.

Divergence
Preliminary European employment and GDP numbers due at 0900 GMT and U.S. retail sales figures at 1230 GMT are the next set of data for investors to parse for signs of divergence between the U.S. and European recoveries.

Gathering faith in Europe’s rebound, and doubts in the United States as the virus spreads and politicians remain deadlocked over the next relief package, have kept the euro firm even as the dollar has been able to bounce a bit elsewhere.

A fall last week in the number of applications for unemployment benefits in the United States to below one million was welcome surprise, but with some 30 million out of work and stimulus plans stalled the outlook remains grim.

The euro hung on at $1.1816 in the Asia session on Friday and the pound was also steady at $1.3062, as investors have sought to focus on a rebound in growth in June rather than the diabolical quarterly contraction.

Another element of divergence has opened up in the Tasman Sea, where central banks on either side – in Australia and New Zealand – are striking quite a different tone.

The Reserve Bank of New Zealand sparked a bond rally this week by promising to extend its own purchases and, next week, speed them up as well.

And while the RBNZ talked about sub-zero rates, Reserve Bank of Australia Governor Philip Lowe re-iterated on Friday that fiscal support was what’s needed.

″(The RBNZ) are pro-active,” said Chris Weston, head of research at Melbourne brokerage Pepperstone.

“And if they want something they don’t sit on their hands to see how things evolve, they make it happen, or at least they try. This to me is why AUD/NZD is likely going higher,” he said.

The Aussie last sat at a 22-month high of NZ$1.10941, having forged nearly 1% this week and the spread between Australian and New Zealand 10-year debt, at 28 basis points, is at its widest since May.