US Dollar Strengthens as Sentiment Sours

US Dollar (USD) Firms amid Risk-Averse Trade

The US Dollar (USD) strengthened through the first part of yesterday’s trade as worries about China’s slowing economic recovery hit global markets, thereby boosting the safe-haven US currency.

However, a slight improvement in market mood and far worse-than-forecast manufacturing data out of the state of New York trimmed USD’s gains in the afternoon.

US industrial production data this afternoon may affect the ‘Greenback’ if it surprises markets. Otherwise, risk appetite may once again determine most USD movement.

Pound (GBP) Finds Support on BoE Rate Rise Bets

The Pound (GBP) ticked higher against its weaker peers yesterday as Bank of England (BoE) rate rise bets gave GBP a modest lift. After last week’s GDP data contracted by far less than forecast, a Reuters poll found that 30 of 51 economists questioned believe the BoE will raise interest rates by another half point at its September meeting.

However, ongoing worries about the state of the UK economy continued to pressure the Pound. As the country’s cost-of-living crisis deepens, many fear that current government inactivity will only make the problem worse.

Sterling could face some headwinds this morning following the latest employment report. While the data suggests ongoing strength in the labour market, real pay fell by 3% – the fastest pace on record – as wage growth fails to keep up with inflation.

Euro (EUR) Subdued as Economic Concerns Grow

The Euro (EUR) was subdued yesterday, weakening against many of its peers due to its negative correlation with a recovering US Dollar.

In the absence of economic data, EUR investors were more sensitive to headlines out of Europe. In particular, news that falling water levels in the Rhine could further hurt Germany’s economy may have weighed on the single currency.

Later on this morning, Germany’s latest ZEW economic sentiment index could make things worse for EUR. Economists expect it to hold at a ten-year low.

Canadian Dollar (CAD) Declines as Oil Prices Slide

The oil-tied Canadian Dollar (CAD) fell against the majority of its peers yesterday as crude prices dropped to their lowest levels since before Russian invaded Ukraine. The drop in oil came amid signs of weakening demand from China.

Aside from oil price dynamics, Canada’s latest inflation rate reading could impact CAD today. Will signs of easing inflation see markets pare back rate rise bets for the Bank of Canada (BoC)?

Australian Dollar (AUD) Undermined by Falling Commodities

The Australian Dollar (AUD) initially gained overnight after the Reserve Bank of Australia’s (RBA) meeting minutes signalled further rate rises to come. However, ongoing declines in key commodity prices saw the resource-linked ‘Aussie’ lose ground overall.

New Zealand Dollar (NZD) Falls in Tandem with AUD

The New Zealand Dollar (NZD) softened in overnight trade as the selling pressure in the commodities markets and NZD’s positive correlation with AUD pulled the ‘Kiwi’ lower.

Samuel Birnie

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