US Dollar Falls Versus GBP, EUR as Markets Price Rate Cuts
The dollar declined as markets priced two US Federal Reserve rate cuts in three months amidst the lingering government shutdown and related uncertainties – with workers getting no paycheck.
The USD decline against trading rivals was also spurred by uncertainty surrounding the US-China relations and the ongoing government shutdown.
USD/JPY is down 0.6% on the day now to 149.48 on Friday. The British pound settled at 1.3427 dollars, with sterling gaining 0.53%. The euro also gained 0.29% to $1.1655
In the months following US Tariffs announcements, the dollar switched from rising during periods of market volatility to falling, and thus appeared to switch from a safe-haven to a ‘risk-on’ currency.
Against several pairs, the greenback has frayed its recent ranges, but there has been limited follow-through. The USD weakened across the board on renewed risk-off sentiment apparently caused by concerns around bad regional bank loans and some stress in money market rates.
The FX market acknowledges that the US government shutdown continues to delay many key US economic reports. The dollar “repricing trade” needs strong US data to keep going, especially on the labour market side; a hiccup on that front is likely to keep weighing on the greenback.
With the US shutdown, some two million federal employees will go without a paycheck this week, while a federal judge ruled against “reduction in force lay-offs”. Still, both political parties appear to be retrenching rather than seeking a compromise while the pendulum between fear and greed swings.
The release of the Consumer Price Index (CPI) for September was postponed due to the ongoing federal government shutdown, which has disrupted the operations of key agencies like the Bureau of Labor Statistics (BLS).
However, to meet statutory deadlines in calculating the Social Security’s annual cost-of-living adjustment (COLA), the Department of Labor has recalled select staff to process the September CPI data. The report is now expected to be released on October 24.
The US government remains closed, with both Washington and Beijing feeling aggrieved; tensions continue to run high. US rates have fallen sharply, and the Dollar Index is having its worst week in a little more than two months.
The Dollar Index’s upside momentum since the September 17 FOMC meeting appears to have ended last week near 99.55. It recorded a low yesterday around 98.40 and almost 98.00 today.
The dollar index recovered to test the 98.30 area in the European morning, which is where the 20-day moving average is found. DXY has not settled below it since September 23, while the market remains convinced that the Federal Reserve will cut rates late this month and another cut in December.
The dollar appears to have lost its status amidst dedollarisation. Experts said a currency’s safe-haven status can be gauged by its response to changes in financial volatility.
The US dollar reversion to traditional flight-to-safety behaviour in recent months may indicate that this ‘risk-on’ episode was a one-time event. # US Dollar Falls Versus GBP, EUR as Markets Price Rate Cuts Naira Exposes US Dollar Funds, Investment to Fluctuation Risk
