Despite risk-on sentiment and Fed support for repo market the dollar follows global equities higher
Peter Compton " | September 20, 2019
This morning the US dollar gained back all the lost ground from yesterday’s sell-off despite a general risk-on sentiment. Investors digested the Fed rate cut from Wednesday -along with other central bank activity- and decide US and global equities will continue this year’s bullish run.
September 20, 2019
EUR/USD 1.1021 GBP/USD 1.2478 USD/CAD 1.3285 AUD/USD 0.6781 USD/JPY 107.93 USD/CNH 7.0872 USD/ILS 3.5228 USD/MXN 19.4372 USD/CHF 0.9917 USD/INR 70.9450
The dollar, while up this morning, is stuck in a sideways trading pattern since early September. Earlier this week the Fed voted to cut rates 25bps and markets found the subsequent comments to be slightly more hawkish than anticipated. Despite this, the markets sold the dollar yesterday due to other central banks keeping rates unchanged. What had been considered a currency war is now viewed as sympathy for central banks as they struggle to maintain economic growth in a historically low interest rate environment.GBP
The pound lost ground this morning on the back of overall US dollar bullishness. Yesterday, the Bank of England, as expected, voted unanimously to hold rates at 0.75%. The minutes from the meeting showed that policy makers believe that underlying growth has slowed but should remain positive with the UK potentially seeing weaker inflation should uncertainly around Brexit continue.EUR
The euro lost ground to the dollar and other currencies on the back of German PPI data which came out at -0.5% this morning, significantly worse than the -0.2% which was forecasted.
In a sign that liquidity is plentiful at the moment, the ECB’s latest offering to provide free loans to EU Banks was taken up by only 28 banks for circa EUR3.4bn, significantly below the predictions of EUR20-100bn.CAD
The C-dollar lost value after retail sales for July (+0.4%) came in weaker than expected (+0.6%). The reading on consumer spending was the best in months and oil is higher so loonie weakness may not last.ASIA/PACIFIC
The Indian rupee gained vs. the US dollar after initial concerns about an oil price shock abated. Indian equities rallied with global stocks and the rupee drops below 71 for the first time since early August.
Australian dollar weakness picked up momentum after the A-dollar peaked last week. The aussie has been on a downward path since January 2018 as the Chinese economy, a huge importer of Australian commodities, continues to weaken.