Better risk appetite leads to lower dollar, higher stocks and bond yields
Investors shifted to a risk-on mood on news that Trump is considering a tax cut on capital gains, unexpectedly upbeat German investor confidence, and Russia’s claim that they found a Covid-19 vaccine. The US dollar moved lower across the board, the Russian ruble leading the way. Other safe havens, gold and the Japanese yen, are lower and US Treasury yields moved higher. The Stoxx Europe 600 Index is having its best day in a week. US equities are set for a higher open.
August 11, 2020
EUR/USD 1.1794 GBP/USD 1.3120 USD/CAD 1.3294 AUD/USD 0.7185 USD/JPY 105.99 USD/CNH 6.9418 USD/ILS 3.4018 USD/MXN 22.2684 USD/CHF 0.9121 USD/INR 74.7775
The dollar index is down about 0.35% overnight and in the red against every major currency except the Japanese yen. The risk-on mood in the markets is increasing demand for foreign assets and currencies, and away from the safe haven dollar and US Treasuries. News that Trump may cut capital gains fueled the buoyant mood, as did Russia’s claim of a Covid-19 vaccine.GBP
The pound is higher in-line with other foreign currencies against the dollar, despite release of economic data that showed that employment dropped the most since the height of the country’s lockdown. The pound may have shown strength versus the dollar, but is increasingly weak against the euro, declining nearly every day in August. Bank of England Deputy Governor Dave Ramsden said the BOE will increase quantitative easing if a slowing economy warrants it, increasing the odds of negative rates according to many traders.EUR
The euro gained overnight in-line with other foreign currencies. Investors remain bullish on the euro after the recent €750 billion European Union recovery package was agreed on, which they believe represents a game-changing event for Europe. In Germany, the ZEW Indicator of Economic Sentiment for August increased again significantly versus the previous month. The forward-looking indicator says that experts expect to see a general recovery over the coming six months, especially in the domestic sectors.CAD
The Canadian dollar made gains amid higher oil prices and broad US dollar weakness. News that President Trump may cut capital gains taxes lifted all risk assets and foreign currencies. Better-than-expected Housing Starts in Canada for July released this morning pushed the USD/CAD below 1.33.ASIA/PACIFIC
Emerging market currencies gained for the first time in four days amid the risk-on mood in the markets. Over the last week, political conflicts in several EM countries have given investors cause for concern. The USD/CNY edged lower and looks set to reach last week’s 6.9360 low. The Japanese yen moved little overnight, holding near the 106 level. Markets in Japan are quiet with the start of the Obon Festival, a family reunion holiday.
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