FX Update September 21 – USD up but USDJPY at 6-month lows


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By: Stuart Cowell

Dollar softness and then a rebound higher and juxtaposed to Yen firmness has been the dominant theme in the currency markets so far today, which has been concomitant with tumbling global stock markets and increased risk aversion. USDJPY dropped 0.48% in pegging fresh six-month lows under 104.00. Today racks up as the sixth straight trading day of decline, making this week the third consecutive week of decline. Yen crosses have also been on the ebb today, although by a lesser magnitude thus far. The narrow trade-weighted USD index (DXY) posted an 11-day low at 92.75, before retracing to 93.25, while EURUSD concurrently posted a five-day high at 1.1873 and then declined to 1.1800. The Pound had initially gained on the Dollar while losing ground to the Yen. The commodity-correlating currencies have been holding up well, discordant to the risk-off backdrop in equity and commodity markets.

There is a toxic mix of factors afflicting investor sentiment. There is a surging ‘academic’ in Europe (although it still cannot be called a pandemic gave the remarkable lack of corresponding rate illness, hospitalizations, and mortality), which is leading to much tighter restrictions and, in the case of the UK, the possibility of another full (although time-limited) national lockdown. The approaching US elections on November 3rd, characterized by ugly politicking with an outcome that is hard to call, with big implications for fiscal and other policies. The outlook for fiscal support measures globally is, overall, diminishing, and the pace of economic revival is flagging. Safe havens led to the Yen gaining ground today, with the German 10-year yield up 0.2 bp at -0.49%, and the UK Gilt yield up 0.9 bp at 0.19%. US 10-year Treasury rates by contrast are down -0.5 bp at 0.59%.

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