FX market news

The dollar rally stalled midway through the year, ending August with its second consecutive monthly decline (see more). Disappointing economic data and actions by the U.S. Treasury to contain the rise in the long end of the yield curve have taken a toll on the USD (see more). By contrast, EUR/USD consolidated its recovery trend, moving above 1.16 after hitting lows of 1.1325 in June and testing levels above 1.17 as the eurozone economy surprised to the upside over the summer (see more).

• The blockade of the Strait of Hormuz and renewed tensions with Iran have pushed energy prices back to elevated levels (see more). A geopolitical environment that is preventing further declines in the USD, providing a floor for the currency given its safe-haven status and the benefit to the U.S. from favorable terms of trade, as the U.S. is a major crude oil exporter, while hurting Europe and the EUR.
• The slowdown in employment growth in June and July, weak retail sales, and the moderation in the CPI/PPI in the U.S. reduced the likelihood in August of a Fed rate hike in September (see more). However, the recent upside surprise in August employment has eased some doubts and made Fed action more likely, although the inflation outlook will undoubtedly be the key factor shaping and determining its decision on September 16 and beyond (see more).
• Speculators’ net long USD positioning reached recent highs in July (see more). This exposed the dollar to severe asymmetric correction risks in the event of any weak U.S. States economic data, as we have seen, or if the Fed were to disappoint. The latest data, although showing that some USD long positions have been closed, still indicate that there is room for further unwinding (see more).