The US Dollar (USD) was up sharply midweek against all other currencies. This increase was propelled primarily by hopes that the Federal Reserve will maintain its policy course in December. The USD Index shot up to a two-week high, settling above the key 100.00 threshold. This was particularly the case in currency markets, where the dollar soared by more than +1.33% against a trade-weighted index of other currencies. When the market opened on Thursday, the index was stable with small gains, floating just above 100.30. Investors are looking forward to Friday’s Nonfarm Payrolls report.
The bullish expectations for the USD led to extreme volatility in nearly every currency pair seen during the original pandemic shock. The most pronounced impacts occurred in GBP/USD, USD/JPY, and EUR/USD. The truth market has moved on to the September employment report. We look forward to seeing this report provide useful context and perspective on the health of the US economy.
USD Index Surges Amid Policy Hold Expectations
On late Wednesday, USD Index after a strong bullish momentum exploded. It rose above the 100.00 mark for the first time in a fortnight. This increase was primarily due to market expectations of a stable monetary stance from the Federal Reserve Board in December. Most economists expect that a Fed decision to hold interest rates would strengthen the dollar even more.
By late Thursday the index was still holding onto small gains around 100.30. This stalwartness signified strong investor confidence as they anticipated the oncoming wave of crucial economic data. The Nonfarm Payrolls and Unemployment Rate releases in the coming months will be telling. They will essentially shape monetary policy going forward. These data print will affect the dollar’s trajectory.
Beyond domestic factors, external influences played a role in the dollar’s strength. Geopolitical developments and the concomitant changes to the global economic outlook have altered the environment for investors. Today, they favor the perceived safety of the USD.
Currency Pair Movements Reflect USD Strength
The GBP/USD currency cross fell by over 2.0% on Wednesday, ending the day below 1.3100 for the first time in nearly three months. This autumn proved to be the autumn underlined growing pressure on the British pound, which was having trouble finding its footing in early Thursday trading. The pair traded in a very tight range just above 1.3050, which represented broad uncertainties ahead for the UK economy.
The USD/JPY cross remained in full bullish rally mode. It started to pick up steam during the American session and carried that momentum through the Asian trading hours on Thursday. It hasn’t traded over that level since early June, when it peaked at the highest point since mid-January. That amounts to a remarkable weekly increase of nearly 2%. This performance touched off a major market sentiment shift to support the dollar against the Japanese yen.
Not helping the fundamental backdrop was the EUR/USD pair, which lost almost 0.4% on Wednesday to close in the red for its fourth straight day. The euro remains heavily depressed against the dollar as well. That goes to show just how strongly positioned the greenback is in today’s market.
Anticipation Builds for Employment Report
As investors count down for the release of key economic pointers as US$ proved firm across a number of key crosses. As such it has posted a 0.90% gain vs the euro and 0.76% advance vs the British pound. On top of that, it nicely realized a 1.97% increase against the yen, a 0.24% increase against the loonie and an 0.85% gain against the Aussie.
Taken together, these movements are a harbinger of more dollar strength to come, which positive employment data could serve to further reinforce. The Nonfarm Payrolls report is particularly significant as it provides insights into job growth and overall economic health in the United States.
Strong employment numbers will serve to strengthen the case for calm Fed policy, market analysts are quick to stress. This stability could further strengthen the dollar in the coming trading days. Data that comes in well below expectations may lead investors to start reassessing their positions with respect to the USD.