By Han Tan, Market Analyst at FXTM
The Dollar index (DXY) has gained 0.7% so far this week, briefly breaching the 98.0 psychological mark before easing from its highest levels in nearly three weeks. The DXY continues to demonstrate its resilience against its major peers, strengthening against all G10 currencies, and has erased its losses since the Fed lowered interest rates on October 30.
The Dollar has been buffered by signs that US economic growth momentum remains intact, a notion underscored by October’s better-than-expected ISM non-manufacturing index released on Tuesday and last week’s non-farm payrolls.
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Unless the incoming economic data point to a steeper-than-expected slowdown in the US economy, the Greenback should remain supported through to the year-end.
Fed speeches offer clues on policy bias
Federal Reserve chairman Jerome Powell recently stated that US monetary policy is in a “good place”, prompting investors to push back expectations for the next Fed rate cut, while any policy tightening has essentially been ruled out barring signs of “serious” inflation. The Fed Funds futures currently point to a better-than-even chance that the FOMC will maintain US interest rates at current levels at least through to April 2020.
The slate of speeches by Fed officials over the coming days could offer further support for the Dollar, especially if they continue trumpeting the US economy’s solid footing. However, should investors get the sense that Fed officials are still open to policy easing over the near-term, we could see DXY unwinding recent gains as investors recalibrate their forecasts for US interest rates.
Asians ride US-China trade deal optimism
Unlike G10 currencies, most Asian currencies have been able to strengthen against the Greenback this week, as investors grow increasingly confident that a US-China trade deal will become official sometime in November. A signed deal, albeit a limited one, could trigger another bout of risk-on sentiment which should give Asian currencies another leg up.
Strengthening in the Yuan and USDCNY breaking below the psychologically important 7.0 mark offered cues for the former’s regional peers to follow suit, considering the Yuan’s role as a barometer for US-China trade relations. However, Asian currencies will need more concrete signs that the deal will be formalised before they can realise more upside against the Greenback.
Bullion bulls in doubt
Gold fell sharply below $1500 before bouncing off $1479.50, as investors grow hopeful once again that the US and China will come to a trade agreement this month.
Risk sentiment has been volatile of late, with investors reacting to every headline pertaining to the US-China trade conflict. A signed deal this month would ease global recession fears while potentially sending Gold prices towards $1460.
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