FX Daily: Dollar price action quite poor
USD: Dollar should be doing better Dollar price action this week has been a little disappointing/confusing. Higher energy prices due to an escalation in the Gulf will direct more trade flows towards the US at the expense of Europe and Asia. At the same time, US short-dated rates remain relatively elevated as they await Friday’s ...
Dollar price action this week has been underwhelming, puzzling market participants. The rise in energy costs due to a Gulf conflict has led more trade to flow to the US, rather than Europe or Asia. Meanwhile, US short-term interest rates remain high, awaiting the release of the August CPI data from the Federal Reserve. The Fed is expected to increase rates by 25 basis points.
However, the dollar's lack of strength might be due to a weak investment environment and fluctuations in the USD/JPY pair. Global equities are near their highest levels due to the ongoing AI investment boom, creating a negative correlation between equities and the dollar. USD/JPY is also quite fragile, with global macro hedge funds expecting a breakdown of 150 within the next few months, as Japanese policymakers are expected to honor a deal with Washington.
Another consideration is whether buy-side investors are gradually increasing their dollar hedge ratios. Recent summer data indicates European buy-side investors have been running relatively low FX hedge ratios on US assets, which may be questioned in committee meetings as they contemplate more aggressive US Treasury policy. Today, the US Treasury will be conducting a buyback of longer-dated Treasuries, as well as auctioning $39 billion and $22 billion of 10 and 30-year bonds, respectively.
The bond market will be closely watched as it may provide insights into the dollar's behavior amidst the higher energy prices.
Written by urgent.news from Hellenic Shipping News's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.