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Forex Today: Aggressive Fed Bets Lift Dollar Ahead of Key Central Bank Events

This is what you need to know to trade today Wednesday September 7:

The dollar outperformed rivals on Tuesday on upbeat ISM Services PMI data and maintained its strength early on Wednesday as the Dollar Index hit a new multi-decade high above 110.50. Investors remain cautious midweek as attention turns to central bank events. The Bank of England (BoE) monetary policy hearings will take place at 09:00 GMT and the Bank of Canada (BoC) will announce its interest rate decision at 14:00 GMT. Eurostat is to publish second-quarter employment change and Gross Domestic Product (GDP) growth data ahead of Thursday’s European Central Bank (ECB) policy announcements. During US trading hours, several FOMC policymakers will make speeches and the Fed will publish its Beige Book.

After opening slightly higher, Wall Street’s major indices closed in negative territory on Tuesday as investors increased bets on the Fed’s hawks following a stronger-than-expected PMI reading. According to CME Group’s FedWatch tool, markets currently price the probability of a 75 basis point Fed rate hike in September at 74%, up from 57% on Tuesday. Meanwhile, the 10-year US Treasury bond yield gained almost 4% on Tuesday and hit its highest level since mid-June before entering a consolidation phase around 3.35%.

The AUD/USD lost nearly 100 points on Tuesday despite the Reserve Bank of Australia’s decision to raise interest rates by 50 basis points. During Asian trading hours on Wednesday, the pair continued to push lower and hit its weakest level in six weeks at 0.6700. Data from Australia earlier in the day showed GDP grew at an annualized rate of 3.6% in the second quarter, slightly better than the market expectation of 3.5%, but did not help the AUD gain strength. Meanwhile, data from China revealed that exports and imports expanded at a softer-than-expected pace on a year-over-year basis in August.

In an interview with Eurofi magazine, several ECB policymakers were relatively cautious about aggressive monetary policy tightening. During American trading hours on Tuesday, the EUR/USD came under renewed downward pressure and hit its weakest level in 20 years below 0.9900. The pair is clinging to a modest recovery above this region early on Wednesday.

Reports suggesting that the new UK Prime Minister, Liz Truss, was planning to freeze energy prices for households for 18 months helped sterling hold its ground against its main rivals. In a speech on Tuesday, Truss reiterated that she will cut taxes to reward hard work, adding that she will take action against the energy crisis and unveil her plan this week. The GBP/USD remains relatively calm around 1.1500 early on Wednesday.

The relentless selling of the yen continued in the early hours of Wednesday and the USD/JPY hit a new multi-decade high above 144.00. The pair is already up over 400 points so far this week. When asked about currency intervention, Japanese Finance Minister Shunichi Suzuki said on Wednesday that “we will take the necessary measures.” This comment was ignored by market participants as USD/JPY is up 1% on the day at 144.15.

The USD/CAD it is trading within easy reach of 1.3200 on Wednesday. The BoC is expected to raise its interest rate by 75 basis points to 3.25%.

Bank of Canada Forecast: Will the BoC take its foot off the accelerator?

The Prayed took a sharp turn in the second half of trading on Tuesday and suffered heavy losses amid rising US Treasury yields. XAU/USD is trading in negative territory slightly below $1,700 early on Wednesday.

The Bitcoin It fell below its weekly forming range on Tuesday and is now trading around $18,800. ethereum it continues to slide towards $1,500 after losing more than 3% on Tuesday.

Source: Fx Street

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