Dollar Falls to Two-Year Low; Euro Breaks Higher

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Dollar Falls to Two-Year Low; Euro Breaks Higher

AUGUST 18, 2020

The U.S dollar is under pressure again this morning and appears to be heading for its ninth consecutive weekly drop.

Overview

The Bloomberg Dollar Index is now at its weakest level since May 2018.

The dollar is likely to remain under pressure as stimulus talks in Washington are said to be deadlocked.  Republicans are said to be preparing a scaled-back stimulus bill while House Democrats are pushing for a larger relief package that would include an additional $25 billion in funding for the U.S. Postal Service.

Sino-American tensions ratcheted it up again with the U.S. announcing more restrictions on Huawei Technologies Co.

Despite the gloomy headlines, risk sentiment continues to soar.  European stocks rose overnight and American shares look to add to recent gains.  The S&P is within striking distance of its all-time highs and may reach that level today.  Increased risk sentiment is adding to the dollar’s woes.

The economic docket showed housing starts beat estimates registering at 1.496K starts beating 1.220LK the month prior.  This represents a 22.6% month over month growth.  Building permits also beat expectations.  The housing market remains red hot even as many homeowners are falling behind on their mortgage payments.

What to Watch Today…

  • No major events scheduled for today

A complete Economic Calendar can be found here.

EUR

The Euro drifted higher against the U.S. dollar overnight, in what has recently felt like “per usual.”  EUR/USD experienced a sharp jump higher in early trading despite a lack of fundamental data to point to.  Euro is now trading at a fresh two-year high.

Perhaps for a lack of a good reason, traders and financial reports said that a number of buy stops were triggered, causing the Euro to jump. EUR/USD last tested these levels two weeks ago and the Euro did not find enough momentum to break and hold in new, higher levels.  Time will tell if this Euro rally will stick but recent fundamentals are not in the greenback’s favor.

GBP

The British pound popped higher for a fourth straight day against the U.S. dollar.  Sterling has recovered from its steep drop in the month of March and is now at its strongest level since the end of January.  The sterling strength comes even as there is much work to do on the Brexit front.  European and U.K. officials restated Brexit talks today in an attempt to come to an agreement on their future relationship.

Negotiations are scheduled to end on October 2nd.  A quick reminder that the “post-Brexit transition period” ends on December 31, at which time tariffs and quotas will hit consumers.  EU officials have said that they need 11 weeks to ratify any agreement, effectively making the October 15th summit of EU leaders the effective deadlines for a deal.  It’s been half a decade since the Brexit vote!

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