Forex Today – Asian Session: Safe Havens Are in Demand Due to COVID Problems in China

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The beginning of the week was volatile and the sessions in the US followed the same pattern. The dollar rose to 106.74 on Monday, recovering slightly from a 3-1/2-month low of 105.32, with investors worried about a slowdown in the global economy and the spread of the coronavirus in China.

Federal Reserve officials also spoke out on Monday, opposing the sentiment that it will soon be time to slow the pace of interest rate hikes for the central bank to assess the economic outlook. Instead, because of the tight labor market, James “Jim” Bullard, president and CEO of the Federal Reserve Bank of St. Louise, said this gives the Fed license to pursue a disinflationary strategy now.

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Federal Reserve Bank of New York President John Williams said Monday that he believes the Fed will have to raise rates to a level tight enough to put pressure on inflation, and keep them there for all of next year:

“I think we’re going to need to keep policy tight for a while; I would expect that to continue at least into next year,” Williams said at a virtual event held by the Economic Club of New York, adding that he did not expect a recession.

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Earlier this month, the Fed made its fourth straight interest rate hike by 75 basis points and raised borrowing costs to the highest level since 2008 to rein in persistent inflation. Money markets now value at 70% the possibility that the central bank will apply a minor rate hike of 50 basis points in December.

Meanwhile, risk markets weighed on high-beta currencies such as the pound, Australian dollar and euro. “The lockdowns may make it more difficult for China to achieve its expected economic growth, which will also have implications for global economic growth,” ANZ Bank analysts said at the start of the Asian session on Tuesday.

Late in the afternoon, the S&P 500 lost 1.59%. The Nasdaq Composite was down 1.5%, while the Dow Jones Industrial Average lost 1.44%.

The EUR/USD pair was down 0.44%, falling to a low of 1.0333 from a high of 1.0496. GBP/USD fell to 1.1940 from 1.2117. AUD/USD eased to 0.6642 from 0.6727. The US 10-year bond yield rose 3 basis points to 3.71%. Oil prices fell to their lowest level in almost a year, but then rebounded as lower prices ignited demand. WTI rose 0.5% to $76.93. Gold fell 0.7% to $1,741.02/oz. BTC/USD was down 1.2% and approached a daily low of 16,004.

Source: Fx Street

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