Dollar downed: Three reasons for the grind in the greenback

The US Dollar is on the back foot and it's not only a "flash crash".
The move is broad, with commodity currencies also taking advantage of the fall.
There are three reasons for the fall.

Yohay Elam FXStreet

Cascading stops in the most illiquid hours of the day when Japan was on holiday were all blamed for the "flash crash" on USD/JPY. However, in the most liquid hours when New York and London overlap, we see the US Dollar down across the board. It is not only dollar/yen but the greenback in general.

EUR/USD tops 1.1400, GBP/USD is flirting with 1.2600, and USD/JPY is resuming its falls at full volume.

Here are three reasons for the fall:

1) Kaplan open to cutting QT

Just before Christmas, Fed Chair Jerome Powell broke markets' hearts by saying that the balance sheet runoff will continue on auto-pilot. This comment overshadowed the otherwise dovish hike: the Fed reduced its forecast for rate hikes in 2019.

But now, Dallas Fed President Robert Kaplan says that this reduction of the Fed's balance sheet, also known as Quantitative Tightening, may be reconsidered. The Fed is currently limiting the reinvestment of maturing bonds it bought in the QE years. The gradual move, described by the then Fed Chair Janet Yellen as "watching paint dry" is drawing money from stocks.

If the Fed is now open to halting this process, there may be more dollars running around, thus pushing the value lower.

2) China does not take a bite from the Apple

The iPhone maker may be facing a saturated market for smartphones and not only an issue with China, but its revenue warning came on top of other data showing a slowdown in China and growing worries about the world's second-largest economy.

The US is doing better than China and may be "winning" the trade war, but in trade like in a real war, everybody loses. The shockwaves also add to the odds that the Fed will slow down or halt.

3) Forward-looking fall

The ISM Manufacturing PMI plunged to 54.1 points, much lower than early expectations and a plunge from 59.3 points. The new figure represents a weak growth looking forward. While the sector is small in comparison to the services one, the bellwether sends shockwaves around markets.

What about the upbeat ADP NFP? Employment is a lagging indicator, not a forward-looking one, and markets are used to upbeat employment figures. The downbeat ISM number strengthens the narrative of a Fed slowdown.

After a robust 2018, the greenback is not doing that well in the wake of 2019. Will this continue?

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

AUD/USD rises to 0.6950 as USD slips on Fed's Warsh

AUD/USD regains traction and extends the bounce toward 0.6950 in the Asian session on Friday. Fed Chair Warsh's comments reinforce the selling pressure on the US Dollar, allowing the pair to stretch higher. Warsh said that he remains committed to delivering price stability without giving away anything on future interest rate path.

USD/JPY falls in symc with USD, gives up 158.00 after Warsh's speech

USD/JPY has come under fresh selling pressure and gives up 158.00 in the Asian session on Friday amid the emergence of fresh US Dollar selling. Fed Chair Warsh's non-committal commentary on the future tightening path, weighs on the US Dollar and the pair.

Gold looks vacillating above $4,150

Gold alternates gains with losses below the key $4,200 mark per troy ounce on Friday. The yellow metal’s irresolute price action comes in response to a modest pullback in the US Dollar and a tepid recovery in US Treasury yields across the board.

Bitcoin steadies at $82,000: The five forces crushing the Uptober rally

Crypto markets have remained under pressure so far in October, with Bitcoin (BTC) sliding below $80,000 earlier this week before recovering to around $82,000 on Friday, as macroeconomic headwinds and cooling demand weigh on the market.

The Fed just got a second hot inflation number. Here's what the diesel signal is really saying

The Federal Reserve (Fed) faces a renewed inflation challenge after two consecutive reports showed price pressure intensifying across the US economy. September's Consumer Price Index (CPI) confirmed accelerating consumer inflation, while the Producer Price Index (PPI) revealed an even sharper rise in business costs. Behind both reports lies a common factor: energy prices.

Everyone's dumping Gold after hot US inflation. Here's why $4,100 could be a floor, not a cliff

Gold (XAU/USD) is recovering from a sharp sell-off triggered by hotter-than-expected United States (US) inflation data released on Wednesday. The precious metal briefly plunged toward $4,073 as investors increased their bets on further Federal Reserve (Fed) interest rate hikes before recovering as US Treasury yields and the US Dollar (USD) reversed their initial gains.