Daily Currency Update

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Demand for the US dollar continues

USD - United States Dollar

A basket of currencies weighted against the US dollar is up over 3% since the end of August. Although the demand may have flattened out today, there is likely to be more volatility in the future.

The US dollar index is up over 3% since the end of August, when demand for the dollar had fallen to its lowest levels since April 2018. In August, the Federal Reserve announced changes to its inflation policy and the dollar’s value dropped precipitously on the back of the news.

The US Dollar Index bottomed out on Sept 1 at 91.80. Since then, the dollar has strengthened against the euro, Great British pound, Australian dollar, Canadian dollar and others. On Monday, it broke through 94 and today the index is up a tenth of a percent.

Key Movers

The Euro touched an 8-week low, falling through 1.17 while the Pound broke two-month lows following the introduction of new COVID-19 restrictions. Prime Minister Boris Johnson has reinstated curfews on bars and restaurants and encouraged Britons that can work from home to do so. The new round of restrictions is considered the bare minimum in a bid to combat a second wave of infections. The Pound broke below 1.2750 to touch 1.2710 and appears poised to test a break toward 1.25 as we move toward the October Brexit deadline.

The EU’s negotiator Michel Barnier said that he is determined to get a deal done and is currently in London for informal talks. Michael Gove, representing the British government, added to the optimistic feel. He expressed his confidence in the likelihood of a deal and that Brexit can overcome its difficulties to secure a free-trade deal with the EU.

The Australian dollar tracked lower through trade on Tuesday and it was weighed down by a shift in risk sentiment. Hawkish commentary from a Federal Reserve member amplified the impact on markets. Having drifted sideways through the domestic session the AUD was forced below 0.72 US cents touching intraday lows at 0.7155. Investors’ appetites for risk evaporated after Fed member Charles Evans suggested the Fed could raise rates before inflation hit an average rate at 2%. The Fed has led markets to believe interest rates will be flat through the foreseeable future and Evans shift away from that narrative caught investors off guard, prompting a rush to adjust yield expectations. Risk sentiment continued to sour as uncertainty envelops financial markets.

Expected Ranges

EUR/USD: 1.163 - 1.168 ▲

GBP/USD: 1.269 - 1.277 ▲

AUD/USD: 0.702 - 0.710 ▲

USD/CAD: 1.334 - 1.341 ▲