An easing of multiple geopolitical tensions leads to a softer dollar
Scott Petruska, CFA " | September 9, 2019
The dollar index softened from Friday’s close due to an easing of multiple key geopolitical tensions. Positive news with UK’s Brexit, Italy’s new government, Hong Kong demonstrations, and US-China trade negotiations led to an increase in risk appetite in the marketplace. In this environment, demand is lower for safe-haven assets, weakening the dollar, Japanese yen, gold and bonds. Equity futures indicate a higher open this morning.
Economic data this week:
Monday: US Consumer Credit (July)
Tuesday: US Small Business Optimism Index (August), US Job Openings and Labor Turnover Survey (JOLTS) (July)
Wednesday: US Producer Price Index (August)
Thursday: European Central Bank announces monetary-policy decision, US monthly budget statement from Treasury Department (August)
Friday: US Retail Sales (August), University of Michigan Consumer Sentiment Index (Sept)
September 9, 2019
EUR/USD 1.1047 GBP/USD 1.2360 USD/CAD 1.3161 AUD/USD 0.6867 USD/JPY 107.02 USD/CNH 7.1200 USD/ILS 3.5237 USD/MXN 19.5097 USD/CHF 0.9911 USD/INR 71.7063
After reaching nearly a three-year high last week, the dollar index started the weak soft due to an easing of multiple geopolitical tensions. Traders await the ECB meeting on Thursday and a slew of US economic data releases, which may influence the Fed’s decision later in the month. Traders remain positioned long dollars.GBP
The UK pound rallied following release of GDP growth, which showed their economy expanded by 0.3%, higher than expectations of 0.1%. Also, traders were encouraged when PM Boris Johnson said he would prefer a deal to no-deal by October 31, saying that a no-deal would be a “failure of statecraft.”EUR
Early last week, the euro dropped below $1.10, a 2 ½ year low. It bounced hard later in the week, and now sits somewhat comfortably above $1.10. Traders await Thursday’s key European Central Bank meeting. The ECB’s current benchmark rate is negative 40 bps, and a 10-20 basis point cut is expected. However, it will be the ECB’s additional methods of easing that matter most.CAD
The CAD edged higher versus the dollar as today’s risk-on sentiment supports all foreign currencies. The USD/CAD dropped close to 1.3150, its lowest level since July. Oil prices moved higher after the new Saudi Oil Minister said production cuts should continue. The closely-watched differential between US and CA interest rates reached its lowest level in nearly two years, reducing the attractiveness of US interest rates and the US dollar.ASIA/PACIFIC
The Chinese yuan moved very little over the weekend. The Japanese yen’s role as a safe-haven currency led to its weakness overnight in the market’s current risk-on mood, the USD/JPY is trading near 107.