The Dollar index (DXY) continues to pare losses seen earlier this month, as investors await the minutes from the September FOMC meeting as well as the September CPI reading. Unless either the FOMC minutes or the latest US inflation print over the next 24 hours drastically bolsters the case for a more dovish Fed, any DXY moderation this week is expected to be transitory, with the 98.65 and 98.40 support levels in focus over the near-term.
While much has happened on the global stage since the Fed lowered US interest rates by 25-basis points on September 18, investors are still trying to piece together clues that will help form a more conclusive outlook on US monetary policy. At the time of writing, the Fed funds futures point to two more 25-basis point cuts to the benchmark interest rates by the year end. Yet, the DXY is refusing to buckle under the weight of such dovish expectations, as investors continue supporting this safe haven currency amidst the deteriorating global economic conditions.
Pound weighed down by Dollar resilience, Brexit risks
The Pound remains subdued below the 1.225 line against the US Dollar, as investors continue grappling with the likelihood of a no-deal Brexit by the end of this month. It remains to be seen whether UK Prime Minister Boris Johnson can actually seal a Brexit deal with the EU establishment ahead of the October 31 deadline, although such hopes are fading fast. With some three weeks left before the current deadline, investors still cannot yet completely rule out a no-deal Brexit, hence the downcast outlook for Sterling.
Euro’s bearish trend show scant signs of letting up
The Euro’s bearish trend in the second half of the year has already sent EURUSD towards the 1.09 mark, with the Dollar’s resilience ensuring that the Euro’s bias remains tilted towards the downside. Given Europe’s economic turmoil, being hit with more US tariffs at a time when Germany’s manufacturing is contracting, there’s scant cause to think that the Euro’s upside would be realized in the near-term.