FX Update: A week to watch the USD and US-China FX Update: A week to watch the USD and US-China FX Update: A week to watch the USD and US-China

FX Update: A week to watch the USD and US-China

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  An interview with US Fed Chair Powell nudged the US dollar lower to start the week, but that effect may quickly fade as the chief source of risk this week may prove to be fresh developments in the increasingly fraught US-China relationship and the USD is largely holding its own as the week gets underway, even if volatility is sorely lacking.


Risk sentiment has apparently received a boost from the late Sunday TV programme 60 minutes and its interview with Fed Chair Jay Powell on the outlook for the US economy and the Fed’s willingness to continue providing the necessary support. While the Fed Chair by no means donned rose-tinted goggles on the shape of the recovery, his reassurance that the Fed is far from out of ammunition and other comments provided a tone that was perhaps seen by many as offsetting some of the negative reaction to last Wednesday’s speech. Powell again pushed against the idea of negative policy rates.

The FX reaction to Powell’s speech was less detectable, with the US dollar only a notch or two lower in places and notably stronger against the Chinese renminbi overnight. The recent drumbeat of developments and the latest US move against Huawei have us concerned that situation could continue to escalate from here. On that note, the USDCNY rate remains the most important exchange rate for the outlook here on any further signs of a worsening geopolitical strains or even threats that the US-China trade deal faces a collapse. This morning, the rate was 7.1150 and thus above the highest daily close for this year, with any approach to 7.20 likely to signal broadening unease and a large break above trig. In FX, the fallout from lower CNY would be likely felt most acutely in EM and with the G10 by AUD and NZD.

Not much on the calendar today as we await headlines from the US and China this week, but we also watch for an ugly rise in tensions on the US domestic political front as the Democrats massive $3 trillion stimulus passed by the House will not pass the Republican-majority Senate or get Trump’s signature. US Treasury Secretary Mnuchin and Fed Chair Powell are both set to testify before the US Senate Banking committee tomorrow on the CARES act, the rollout of which has not been without considerable controversy.

Chart: EURUSD still heavy
The EURUSD exchange rate is not necessarily the most sensitive to the overall USD direction, but is a key piece in establishing the broader USD levels and particularly whether the pressure on the USDCNY rate is waxing or waning. The 1.0800 level has proven very sticky of late, with several forays below quickly gathered up. A failure and daily close through 1.0750 could set the broader FX market on edge from here and add to the attention on the USDCNY rate to boot.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.