Markets Watching US Dollar

Essential Insights

  • The DXY staged a slight rebound through the US trading session earlier today and is up +0.16% so far into the Asian trading session.
  • EUR/USD touches 1.2 but fails to hold
  • UK prepared to walk away from trade deal talks with the EU

The Asian trading session has kicked off slightly mixed, despite its US counterparts pushing into yet another day of record highs. US equity bourses were once again lead by gains posted by Tech companies and work from home technologies such as Zoom which saw a staggering 40% again in a single day. Market participants remain set in stone with their expectations of further accommodative policies from central banks, this has been further fuelled by the FED’s decision to roll out inflation targeting initiatives last week.
To add to this, cases generally seem to be slowing down in developing countries which markets have taken positively too, though the concern is that cases and rapidly picking up in developing countries such as India, and so the effect of this may be somewhat muted though has non the less supported US equities. A pick up in economic activity in the US and across China has also seen crude oil prices edge slightly above $43 a barrel.
The dollar clawed back losses after heavy selling, following from last weeks FED event. This came as US manufacturing data showed manufacturing expanding last month at the fastest rate recorded since 2018. Markets have taken this que as a sign that perhaps the US economy is fairing better than what has been priced in. Though the initiative of inflation targeting still remains and this will most likely override this short term rally, therefore expect it to be most likely short lived. Additionally, because we do not know the details of how exactly the FED will carry this out, there is a wave of uncertainty that will weigh on the dollar index.
Boris Johnson has threatened the EU by saying the UK is willing to ‘walk away’ from trade talks with the EU. This comes after EU chief negotiator Barnier said that the EU were reluctant to open discussions surrounding proposals on fisheries until the UK addresses other issues. There could be a very tit for tat like scenario here where the UK walks away from talks and tries to re-negotiate once again when time  is constraint towards the end of Q4, though this strategy assumes EU counterparts will continue trading under post-Brexit agreements.
Following heavy backlash on potentially raising corporate tax rates, UK chancellor Sunak has suggested raising duel duties by 5 pence as part of the Autumn budget plans to combat the UK’s high levels of accumulated debt.
After touching 1.2, prices have been underpinned, mostly due to the pullback in the dollar index, net long speculative positions remain high in the Euro.
The RBA maintained the same forward guidance as expected, reinforcing commitments to support the domestic economy. Prices remain close to their intra-day session high at 0.74, and is likely to re-visit should the dollar index fade the pullback caused by slightly better than expected manufacturing data.



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