Dollar enjoys additional interest rate support
|EUR/USD hovered up and down yesterday, but USD strength finally prevailed. After some caution in Asia, the risk rally continued as officials confirmed the US and China intended rolling back tariffs in case a partial agreement. EUR/USD initially gained on the optimism, but the rebound stalled soon. The EC further downgrading its EMU outlook was a potential euro negative. US and European yields both rallied further, but the short-term interest rate differential still widened in favour of the dollar. EUR/USD dropped from the 1.1090 area to close at 1.1050. USD/JPY rebounded north of 109 to close at 109.28.
This morning, the risk rally looks like running into resistance after substantial gains earlier this week. The rise in global yields at least takes a pause and so does the dollar (trade-weighted dollar DXY at 98.12). USD/JPY stabilizes in the 109.25 area. The yen hardly reacted to PM Abe calling for fiscal stimulus. The RBA in the quarterly policy statement sounded quite dovish on wage growth and inflation over the policy horizon. The Aussie dollar dropped back below the AUD/USD 0.69 level.
There are only second tier data in Europe today. In the US, the University of Michigan consumer confidence is expected little changed (95.5) after a decent rebound over the previous two months. Any impact on the dollar should be limited. After the recent rally, quite some good news should be discounted, also in the interest rate markets. At least this week, the dollar profited from positive trade headlines and the rise in yields. This USD rebound might slow going into the weekend. This especially applies to USD/JPY. At same time, recent EUR/USD price action was a bit disappointing. The October rebound has stalled, and the pair dropped below the 1.1073 neckline, making the picture gain more neutral short term. The 1.10 area markets the next ST support.
The focus for sterling trading turned temporarily from the elections/Brexit to the BoE monetary policy assessment yesterday. The BoE still indicates that rates will might have to be raised slightly over the policy horizon, but two MPC members voted for a rate cut. Sterling spiked briefly lower, but the move was soon reversed. EUR/GBP closed marginally stronger at 0.8629. For today, we expect more technical trading in the lower 0.86 area as the election campaign continues.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.