FX Update – July 27 – USD tracks lower, again

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By: Stuart Cowell

The Dollar continues to drop, printing fresh trend highs against the Euro and other currencies. The narrow trade-weighted USDIndex (DXY) fell over 0.5% to a 22-month low at 93.76 in what is now the seventh consecutive day of decline and the fourth straight week the index has surpassed its prior-week low.

Momentum has also been accelerating to the downside over the last week. EURUSD concurrently printed its loftiest level seen since January 2018 at 1.1724USDJPY fell by over 0.6% in pegging a four-month low at 105.39AUDUSD and NZDUSD lifted by around 0.5% apiece, though both pairs remained off recent trend highs. USDCAD ebbed moderately, lacking impetus for a challenge of last Thursday’s seven-week low at 1.3349. Front-month USOil prices are softer, but have so far remained within the range seen on Friday.

Cable posted a near five-month peak at 1.2858, despite losing about 0.3% against the Euro, Yen and Australian Dollar, among other currencies. The Pound’s laggard performance comes amid increasing signs that the EU and UK are only likely to strike a narrow trade deal, with the risk remaining that the UK might even leave the single market at year-end without a deal.

As for the Dollar, the currency is being down-weighted in portfolios, partly on the advent of the EU’s recovery fund, seen as a milestone by many analysts (a new liquid AAA fund that also reduces Eurozone breakup risks), and partly amid expectations for dovish guidance from the Fed at this week’s FOMC. There has been some speculation that the US central bank is considering yield curve targeting (which we don’t anticipate anytime soon).

Global stock markets continue to exhibit a flagging price action, being richly valued and as the pace of global economic recovery is flattening out somewhat, along with US-China tensions rising from simmering to bubbling. Gold prices hit new highs above $1,900, at $1943, reflecting investor concerns that the massive (and ongoing) stimulus measures around the world will lead to an inflation spike.


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