Despite a confluence of favorable conditions that are typically Dollar bullish — a decidedly hawkish Federal Reserve, plummeting stocks, and soaring yields — the greenback's response was unexpectedly tepid last week. While it managed to gain ground against European majors and Yen, it faltered when squared against the robust commodity currencies. Dollar Index, a measure of the currency against a basket of other major currencies, also recorded only a modest uptick. With the quarter's end on the horizon, it's plausible that a sense of caution may have restrained Dollar's potential surge. Alternatively, traders might possibly be awaiting further developments to validate a one-sided bullish shift. The week was notably tough for Sterling and Swiss Franc. Both currencies took a hit after their respective central banks, BoE and SNB, caught market participants off-guard with decisions to maintain their interest rates unchanged. There's mounting speculation that both these institutions might have hit the ceiling of their tightening cycles. Euro, despite facing its own challenges, found some reprieve from the buying against these two European rivals, which in turn, acted as a buffer against surging Dollar. Meanwhile, Japanese Yen emerged as the week's third most lackluster performer, following Pound and Franc. BoJ's decision to remain tight-lipped about potential policy adjustments did the currency no favors. However, fears surrounding potential intervention are lending some support to Yen, anchoring it securely above 150 mark against Dollar. In a surprising twist, commodity currencies stood out as the week's top performers. Their rise can be dissected into several catalysts. Market bets are tilting towards BoC potentially breaking its pause for a second time, particularly in light of Canada's robust inflation figures. The narrative surrounding RBA remains more ambivalent, with market consensus yet to crystallize on the possibility of another rate hike within the fourth quarter, potentially in November. However, the primary tailwind for commodity currencies appears to be the revitalized Chinese stock markets, endowing them with substantial impetus. |
