The US Dollar remains on the backfoot in the wake of the dovish tone taken by several Fed officials last week, with the market reducing exposure to long-USD positions on the basis that slowing global growth could wind back FOMC rate hike expectations in 2019.
Adding to the greenback’s woes was a forecast from Goldman Sachs that the USD may decline by 6% next year. Falling US Treasury yields also weighed on the USD, with the DXY index falling one quarter of a percent against a basket of its peers.
A poor session for the US Dollar translated into a good performance from the Euro, with the single currency climbing 0.3% higher with the EURUSD rate having advanced to the mid 1.14’s. From a technical standpoint, the EURUSD indicators are short-term bullish and hint at a possible test of the psychological 1.15 level, though a consolidation phase of sorts for the Euro first would not be surprising given the pace of the recent advance from its yearly lows. Though much will depend upon how long the USD remains a sell in the minds of traders, and on how the budget discussions progress between the EU and Italy.
Sterling traded in tentative fashion to start the week, which is not at all surprising given that the fate of the draft Brexit deal from last week remains the great unknown. With the market awaiting further developments, the GBPUSD rate spent most of the session hovering in the 1.28-1.2860 region with no clear directional cues. But of course, this could all change in a heartbeat, with the focus very much on the volatile UK political climate so as usual with all things Brexit -watch this space.
The Yen advanced to start the week on general risk aversion in the market, with the USDJPY rate losing 0.3%, while the Swiss Franc also saw some increased buying interest on safe-haven moves. In fact, the CHF was one of the strongest performers of the session, appreciating 0.6% against the USD.
Meanwhile the Aussie Dollar gave back some recent gains, with heavy falls on Wall Street leading to declines in the risk-sensitive AUDUSD rate. The Aussie slipped back below the 0.73 level, with attention now turning to the local release of the RBA minutes and a speech by the RBA Governor which are both due on Tuesday.
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies