The US dollar hits new highs
The US Dollar started the week with a strong rally as traders rushed to safety in the US currency. The global market sell-off highlighted recession-related concerns, providing additional support for the US dollar.
The US Dollar Index, which measures the strength of the US Dollar against a broad basket of currencies, is currently trying to break above the 109 level. If that bid is successful, it will move towards yearly highs near of 109.30.
The US dollar will remain volatile ahead of the Jackson Hole economic symposium, which begins on August 25. Fed Chairman Jerome Powell is scheduled to speak Aug. 26.
The FedWatch tool indicates that there is a 56.5% chance of a 75 basis point rate hike at the next Fed meeting. The growing likelihood of an aggressive rate hike pushed Treasury yields to multi-week highs. If yields continue to rise, the US dollar will get more support.
Euro falls to multi-decade low as traders focus on energy crisis
EUR/USD fell towards 0.9930 as natural gas prices in Europe hit new highs following Gazprom’s decision to halt deliveries via Nord Stream 1 for three days.
The current selloff is a major event for EUR/USD traders as the European currency has not been so weak against the US dollar since 2002.
GBP/USD has fallen to yearly lows, although it should be noted that it traded even lower during the coronavirus-related sell-off in March 2020. Concerns over the health of the UK economy continue to put pressure on the British pound, and it remains to be seen whether it will be able to break the current downtrend in the coming trading sessions.
USD/CAD managed to settle above 1.3000 and is testing the 1.3050 level as traders focused on the pullback in commodity markets, which was bearish for the Canadian Dollar.
The Australian dollar and New Zealand dollar also came under pressure due to recession fears. AUD/USD is testing the support level at 0.6870, while NZD/USD is trying to settle below 0.6150.
In the short term, traders should focus on the momentum of Crude Oil, which is trying to rebound despite the global market sell-off. A continuation of this rebound could provide some support for commodity currencies.
Japanese yen retreats ahead of PMI reports
The Japanese yen lost its safe haven status this year due to the country’s central bank’s accommodative policy. USD/JPY continues to rise and is testing the 137.50 level.
Soon, traders will have a chance to take a look at the latest PMI data from Japan, but it remains to be seen if these reports will have any impact on the strong downtrend in the Yen.
For an overview of all of today’s economic events, check out our economic calendar.