USD sell off is 'an overdue correction'
We view the sell-off in the dollar in the past couple of trading sessions as an overdue correction, with downside risks to the greenback continuing to outweigh the positives.
The US government shutdown is showing no end in sight, with key tier-1 data, including this week’s inflation report, retail sales figures and jobless claims numbers, all delayed.
Regardless, the Fed has made it crystal clear that it still intends to lower rates against this month, and will highly likely follow this up with another rate reduction in December.
Rising US-China trade tensions, meanwhile, risk another effective trade embargo between the world’s two largest economies in a little under four weeks time.
President Trump and Chinese President Xi are due to meet in South Korea at the end of the month, and markets will be hoping for a deal that averts the return to 145% tariffs on 10th November.
The big unknown is whether China’s weaponising of its rare earths monopoly is merely a negotiating tactic, or a genuine shift in trade policy. We suspect the former, but until we receive confirmation from the horse’s mouth, financial markets are likely to remain on edge and the dollar could stay on the back foot.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
