The US Dollar (USD) is exhibiting widespread weakness as trading progresses into Wednesday’s North American session. This decline extends the downward trend initiated on Tuesday following the release of Consumer Price Index (CPI) data, effectively reversing the majority of the gains accrued at the start of the week, which were initially fueled by optimism surrounding US/China trade relations. Shaun Osborne, Chief FX Strategist at Scotiabank, highlighted this broad-based dollar depreciation.
USD under broad pressure for second session
“Market participants appear to be reacting to recent media reports concerning US/Korea discussions held earlier this month. These talks reportedly touched upon the subject of exchange rates, seemingly reinforcing market perceptions of a US administration that may be inclined towards a weaker dollar policy. The Korean Won (KRW) has appreciated by over 1% today, leading gains among Asian currencies in the foreign exchange market. The relative performance among G10 currencies suggests a degree of mild risk aversion, with the Japanese Yen (JPY) and Swiss Franc (CHF) demonstrating notable outperformance, while the Australian Dollar (AUD) and Canadian Dollar (CAD) are relatively underperforming.” The potential for continued dollar weakness will likely depend on upcoming economic data releases and any further indications from the Federal Reserve regarding future monetary policy.
“The prevailing sentiment across asset markets corroborates the signals emanating from the FX arena. European equity indices are trading with a soft undertone, mirroring the performance of US equity futures. Within the bond markets, the US 10-year Treasury yield is retreating from Tuesday’s high of approximately 4.50%, while the 2-year Treasury yield appears to be stabilizing, exhibiting significant congestion around the 4.00% level. The signals from the crude oil market are similarly uninspiring, with West Texas Intermediate (WTI) struggling to extend its recent gains above $63 per barrel. Copper, on the other hand, is advancing within a descending channel, positioned at the midpoint of its broader trading range. Finally, gold is trading within a remarkably narrow band, and the precious metal appears vulnerable to further downside pressure as it hovers just above support around $3200 per ounce.” Investors are closely monitoring these various asset classes for indications of broader economic trends and potential shifts in market sentiment. The stability of the 2-year yield suggests some uncertainty about the near-term path of interest rate hikes, while the weakness in crude oil could reflect concerns about global demand.
