US Dollar rises across the board - 3 reasons and updates on three currencies
|- The US Dollar is gaining ground across the board in the wake of the US session.
- End of month flows, Fed expectations and trade talk drive the greenback.
- Some currencies suffer more than others.
The US Dollar is reasserting itself in the wake of the last US session of July. The greenback is not taking any prisoners.
Here are three reasons for the rise.
1) Trade talk
News coming out of China says the authorities seek to defuse trade tensions with the US and wish to restart negotiations. After the EU and the US agreed on a truce and after NAFTA negotiations have advanced rapidly, good news on the Chinese front was missing. Better trade is also related to the next topic.
2) Fed set to be hawkish
The Federal Reserve will announce its monetary policy decision tomorrow. The team led by Chair Powell is set to leave rates unchanged but will probably signal a hike in September. Markets are reminded that the Fed is the most hawkish central bank. It comes in contrast to the Japanese yen and the Euro which have suffered the dovishness of their respective central banks in the past five days. Easing trade tensions allow the Fed to continue raising interest rates.
3) End-of-month flows
The last day of the months is when portfolio managers need to readjust and rebalance. The movements in currencies during July have not been massive, but some last minute scrambling is always seen. A rise in the US Dollar now may result in a slide later on, but nothing is certain.
Affected currencies
The reactions are different among different currencies.
- USD/JPY: We see a strong reaction especially as the Bank of Japan maintained its dovish stance. Its tweaks were minimal, and its monetary policy is straightforward. The pair is getting close to 112.00, finally breaking out of range.
- EUR/USD is ticking down but not collapsing. Inflation data came out better than expected in the euro-zone and the dust settled from Draghi's dovishness. The pair was rejected at the resistance level of 1.1750 and did not confirm the move above downtrend resistance.
- GBP/USD is also not suffering too much, but this is related to the anticipation for the BOE to raise rates on Thursday.
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