USD Softer as Markets Position for Fed – Scotiabank

FXStreet Insights Team FXStreet

After clawing a bit of ground back Friday, the USD is starting a crucial week off back on the defensive, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

USD eases on speculation the Fed could cut aggressively

“G10 FX will likely remain range-bound ahead of Wednesday’s FOMC but the USD is testing the (downside) limits of the past month or so’s range as swaps effectively reflect a 50% chance that the Fed cuts its policy rate 50bps this week. Market bets on a more aggressive move were amped up by press reports in the WSJ and FT last week which suggested policymakers were facing a tough choice over whether to ease by 25 or 50bps.”

“An ease of at least 25bps is all but a done deal; a bolder move would perhaps reflect the feeling among policymakers that they need to catch up with the softening in the labour market since July when the Fed minutes showed that the FOMC was quite close to cutting rates.”

“The DXY is just about holding support at 100.50/60 (recent lows and the low from December). A push under support targets another 1– 1.5% drop in the index at least fairly quickly, I think. Note that our FV estimate for the DXY based on weighted yield spreads suggests the index should already be trading closer to 99.5.”

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

GBP/USD back to 1.3250, down modestly for the day

GBP/USD now comes under fresh downside pressure and recedes toward the mid-1.3200s on Tuesday, partially reversing the optimism seen at the beginning of the week. Meanwhile, Cable’s bearish tone follows the resumption of the upside traction in the Greenback, always amid the sharp rally in USD/JPY.

EUR/USD off tops, back to 1.1400

EUR/USD now loses some momentum and recedes from the area of recent daily tops, revisiting the 1.1400 neighbourhood in the latter part of Tuesday session. The pair’s daily decline comes in response to the resurgence of some buying interest in the US Dollar.

Gold clings to daily gains beyond $4,000

Following multi-month lows near $3,950, Gold now manages to regain some composure and reclaim the area beyond the key $4,000 yardstick per troy ounce on Wednesday. Still, any meaningful recovery appears limited as a broadly firmer US Dollar and rising US Treasury yields weigh on the yellow metal.

Ripple defends critical support, Stellar extends recovery

Ripple (XRP) trades around the key $1.00 psychological level, consolidating as the token awaits its next directional catalyst. Stellar (XLM) extends its recovery above $0.178 after posting modest gains at the start of this week.

Why a hawkish Bank of Japan could trigger the next Bitcoin sell-off

The Japanese Yen hits a 40-year low of 162.00 against the US Dollar, raising concerns about intervention or additional rate hikes by the Bank of Japan. BoJ may sell US Treasuries to buy back Yen, potentially pushing US bond yields higher and making Bitcoin less attractive to investors.

Kevin Warsh isn't expected to say much in Sintra: That's exactly why markets will listen

Financial markets could find an important catalyst in the enchanting, fairytale-like landscape of Sintra this week. The ECB Forum will, as it does every year, gather the crème de la crème of central banks. The new boss at the Fed, who has clearly said that the Fed should stop explaining everything, will need to talk – and traders should listen.