Dollar Falls as Bearish Factors Ascend
The dollar declined in early European forex trading on Monday. It was weighed by falling yields and weak economic data. A few signs of a new relief package to help the U.S. economy also weighed on the currency.
At 3:20 AM ET (0720 GMT), the Dollar Index fell by 0.3% at 92.537. USD/JPY fell 0.5% at 105.47 and GBP/USD gained 0.5% to 1.3163. Moreover, EUR/USD was up by 0.2%, at 1.1896.
U.S. economic data disappointed the FX markets on Monday. The Empire State Manufacturing index dropped to 3.7 in August. It was well below the 15 level expected as well as the July reading of 17.20.
This came out ahead of Friday’s Purchasing Managers Indices, which were more forward-looking indicators. They suggest the U.S. economic recovery may be stalling.
Yields on the 10-year note plunged as much as 5% on Monday. It reduced the attraction of assets denominated in dollars.
Meanwhile, forex investors still await the two political parties to agree to a financial support package. Lawmakers are now in recess and both parties’ conventions are happening in the next two weeks. With that, the chances of anything being signed off any time soon appear to be slim.
Little Demand for the Dollar
Even the greenback’s traditional role as a safe haven seems to be attracting little demand.
The Trump administration said on Monday that it would further tighten restrictions on China’s Huawei Technologies. It will crack down on its access to commercially available chips.
However, this has had little impact, with the delay in the review of the U.S.-China trade deal. This suggests this important trade relationship can hold even amidst conflict on multiple other fronts.
Additionally, forex news reports the Federal Reserve minutes are due Wednesday. Investors will study these to see if there was any discussion about the central bank adopting an average inflation target.
If positioning data are to be believed, these dollar losses also look set to grow.
Analysts at ING noted that CFTC data, ending on Aug. 11, added to signs that bearish sentiment on the U.S. dollar continues to grow.
Elsewhere, USD/RUB traded 0.1% lower, at 73.5989. It retraced a touch after the pair climbed to the top of its recent trading range. Russia continues to suffer from the COVID-19 outbreak as well as a weak economy, weighed by U.S. sanctions.
