Home Daily Commentaries USD is mixed today due to some central bankers hinting at some risks of overdoing it

USD is mixed today due to some central bankers hinting at some risks of overdoing it

Daily Currency Update

The USD was mixed today, falling against CAD and CHF by 0.6% and 0.24%. However, it continued to march higher against the euro, pound, Australian, and New Zealand dollar by 0.15%, 0.23%, 0.24%, and 0.3% respectively at the time of this writing.

Fed Chair Powell said in his Cato Institute interview this morning that the 2008 financial crisis has changed the financial system. He said, “We are now living in a world of high and volatile demand for safe, liquid assets.” He inferred that there is a natural cap to how much the Fed will shrink its balance sheet to supply reserves in stressful times.

The main reason for the lack of USD strength today are central bankers, like Reserve Bank of Australia Governor Philip Lowe and Fed Vice Chair Lael Brainard, hinting that monetary policy has some risks of overdoing it (too many interest rate hikes).

Furthermore, market participants are still waiting for US inflation expectations to fall. On top of that, the more than 30% drop in crude oil since its highest level in March might be another signal of consolidation in inflation, so moderation in US dollar increases as well. Furthermore, the exaggerated rise and extreme over-valuation of the US currency suggest we are close to the top.

Key Movers

Queen Elizabeth II died at the age of 96, after 70 years on the throne, and the GBPUSD continues to fall, with only ~100 pips away from a new 37-year low, trading around the 1.1500 handle at the moment.

The European Central Bank hiked 75 bps on Thursday with another ~75 bps hike priced in for October. Furthermore, the Bank of England is expected to raise rates at least 50 bps at its policy meeting next week.

Expected Ranges

  • EUR/USD: 0.9945 - 1.0027 ▼
  • GBP/USD: 1.1464 - 1.1560 ▼
  • AUD/USD: 0.6714 - 0.6773 ▼
  • USD/CAD: 1.3080 - 1.3154 ▼