DXY Hits 3-Month High on Deescalated US-China Trade Tension
The US dollar index (DXY) is near a three-month high at 99.80, on track for a second consecutive monthly gain, supported by deescalated trade tension while expectations of another rate cut fade.
A combination of the hawkish cut by the Fed and what appears to be an important de-escalation of US-China trade tensions helped lift the Dollar Index to a new high for the month.
In Oct, the US dollar gained 4.11% against the Japanese Yen, settling at 154.01 on Friday. For the same period, the greenback has also gained 1.44% against Mexican pesos, settling at 18.5774.
One month trading data also revealed that the US dollar gained 0.65% against Canadian dollar, settling at 1.4013 with mixed fluctuation with British pound and Euro.
The US dollar consolidated gains in what appears to be favourable price action. The pullback from greenback’s best level has been shallow.
The US government struck several trade deals this week, and secured a trade truce with China, even if many are sceptical of its longevity, and the Federal Reserve pushed against a December cut. The futures market has reduced the odds to about 2/3 from near certainty.
The market has priced in US Federal Reserve’s recent actions. Even with mixed expectation, Fed comments led to a clearer differences in policy compared to the European Central Bank, which has kept rates unchanged.
Recall that the Federal Reserve lowered the federal funds rate by 25 basis points to between 3.75% and 4.00% and their cautious guidance has reduced assumptions of a potential December rate cut.
But the European Central Bank maintains a steady rate, as inflation remains near target and economic growth persists. Comments from Federal Reserve officials show a cautious approach. Atlanta Fed President Raphael Bostic remarked on tensions in mandates, supporting the rate cut due to restrictive policy.
The EUR/USD has fallen to 1.1523, a three-month low, as the market digests the Fed’s unexpectedly hawkish tone. Fresh data released today shows the US economy added 210,000 jobs in October, beating expectations and reinforcing the case for the Fed to pause its rate-cutting cycle.
This policy divergence between central banks is now the primary driver for currency markets. While the Fed signals it may not cut rates again in December, the European Central Bank is holding steady, supported by a resilient Eurozone labor market.
However, the latest flash estimate for Eurozone inflation in October came in at 1.9%, slightly below target, which gives the ECB no reason to turn hawkish. UBA Grows Profit by 2.3% to N538bn, Bucks Negative Earnings Trend
