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Demand for dollar ticks up ahead of Fed minutes

USD - United States Dollar

Demand for the US dollar moved higher against a basket of currencies ahead of the release of the Federal Reserve’s July meeting minutes tomorrow. The US Dollar Index touched a 4 and a half month high, trading around 93.09 at the time of writing.

Growing COVID-19 concerns both domestically and globally had the market on edge, and a sharp decline in US retail sales through July sent investors chasing haven assets such as the dollar. The dollar index advanced 0.5% overnight, buoyed by a steep correction across the GBP and EUR, even extending through 109.55 against the Japanese yen.

Key Movers

Inflation in the eurozone ticked up to 2.2% year-over-year in July, This wasup from the previous reading of 1.9%, but in line with analyst expectations. EURUSD was trading around 1.1711 at the time of writing.

Data showed that inflation in the UK fell to 2% from 2.5%. Many were expecting a slight retracement this month, with many restrictions in the hospitality sector lifted earlier last year compared to this. What would have usually prompted a selloff in sterling didn't materialize. Also yesterday's fall in GBPUSD meant another drop was less likely. An improvement in global risk sentiment after a few days of market jitters on the back of poor Chinese data, and the Taliban reclaiming control of Afghanistan which saw stock markets fall seems to have to come to an end, and is also likely supporting sterling. GBPUSD was up 0.18%, trading around 1.3764 at the time of writing.

Having broken the recent July low, the Australian dollar is now vulnerable to further risk-led corrections and changes in RBA policy expectations. Analysts are eyeing Thursday’s labor market print for the first real look into the impact of the Sydney lockdown on the labor force. An uptick in the unemployment rate could well force the AUD through 0.72 and toward supports at 0.70. AUDUSD was down 0.15% and trading around 0.72432 at the time of writing.

Expected Ranges

EUR/USD: 1.1705 - 1.1728 ▼

GBP/USD: 1.373 - 1.3768 ▲

AUD/USD: 0.7235 - 0.7268 ▼

USD/CAD: 1.2605 - 1.2645 ▲