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USD demand softens

USD - United States Dollar

The US dollar weakened against a basket of major currencies on Wednesday. Safe haven currencies were the day's big losers on Tuesday as a risk rally drove the USD, JPY and CHF all lower. The US dollar continued to dip today against a basket of major currencies, trading at 93.63 on the The US Dollar Index.

A continued correction in US treasuries have dampened demand for the USD through the last five days as markets re-adjust expectations for US Federal Reserve policy in 2022. A string of softer than anticipated domestic macroeconomic indicators through Q3, and persistent shortages in workers and raw materials as supply bottlenecks narrow are prompting traders to downgrade monetary policy tightening forecasts. Despite a relatively hawkish Fed outlook, there is an expectation that the impacts of the COVID-19 Delta outbreak will linger through H2 2022. We’re focused on the November policy update from the Fed as a critical marker for near-term direction.

Key Movers

Yesterday, ECB’s chief economist Philip Lane spoke on interest rate hikes, stating that “market expectations for future interest rates do not square with the European Central Bank's guidance for no hike until inflation is seen stably at 2%.” EURUSD was up 0.13% trading at 1.6464 at the time of writing.

The UK continues to rally against a number of majors, particularly the US dollar, as GBPUSD hit monthly highs on Tuesday, just below $1.3850. The main reason seems to be related to aggressive US dollar selling. However, Bank of England Governor Andrew Bailey has already alluded to the fact that the BoE will raise interest rates by the end of the year, to counteract the growing inflation within the economy. GBPUSD was up 0.16% trading at 1.3814 at the time of writing.

The Australian dollar extended its upward direction on Wednesday and pushed above 0.75 US cents. Despite an absence of headline macroeconomic datasets and news flow, risk appetite shifted higher and drove global equities, rates and commodity currencies upward. AUDUSD was up 0.55% at 0.7513 at the time of writing.

Expected Ranges

EUR/USD: 1.162 - 1.1652 ▲

GBP/USD: 1.3742 - 1.382 ▲

AUD/USD: 0.7467 - 0.7514 ▲

USD/CAD: 1.2319 - 1.2369 ▼