The US Dollar had a strong session, with investors favouring the safe-haven appeal of the greenback ahead of some key event risks in the days ahead. With a speech by Fed Chairman Jerome Powell due in New York, and then the G20 in Argentina, currency traders looked to be playing it safe and this saw buying flows sent the way of the world’s reserve currency.
Ahead of the Fed Chairman, we had the Vice-Chair Clarida speaking and signalling that the central bank was much closer to the neutral rate now than it was back in December 2015, which in many respects is self-evident given that the Fed has been raising rates ever since then. When it comes to Jerome Powell, the market will be listening to see if he does anything to indicate that the Fed will be altering its path, which so far has yielded 3 moves higher on interest rates with a fourth expected in December.
Sterling had a tough day and was the session’s biggest underperformer among the majors, with Brexit concerns continuing to hinder the currency. The GBPUSD rate slipped 0.8% lower to 1.2735, with comments from President Trump that the proposed Brexit deal was good for the EU and may impact US-UK trade deals acting as a further weight on the Cable rate, which is now within sight of its yearly low of 1.2661.
What we have seen since the EU approval of the deal on the weekend has been a raft of negative comments from officials from all sides, which brings the prospect of a ‘hard’ (no-deal) Brexit back into focus. Under such conditions, the pressure would appear to remain to the downside for Sterling.
Elsewhere, the EURUSD rate moved 30 pips lower, with the rate precariously placed around a line of support at 1.13. The EURUSD rate could face a retest of its lows at 1.1215 if the cautious trading mentality ahead of some key events keeps the US Dollar well bid.
The Aussie Dollar was held up quite well against what was a stronger US Dollar, with the AUDUSD rate little changed at 0.7225. Some stabilisation on global equity markets in recent days has given the risk-sensitive AUD some support despite a weakness in commodity prices.
Overall, the US Dollar was in favour, but whether this remains the case may depend upon whether Fed Chairman Jerome Powell adopts a hawkish, dovish or neutral tone in his upcoming speech. Any indication that the FOMC remains on track with its interest rate cycle should keep the US Dollar supported near-term.
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US equities continue to welcome any high-risk event being put in the rear-view mirror – especially when rates markets look prime to consolidate lower