The US dollar has now strengthened for two days in a row. Today, the currency is flat against all major currencies except the yen. What began as a bond rout last Friday has since morphed into a stock market rout. As global equity markets sold off aggressively, investors took refuge in classic safe haven assets including the US dollar and US Treasury bonds. As such, the US dollar strengthened against its riskier peers including the euro, the British pound and commodity currencies such as the Australian dollar. Only the Japanese yen, itself a safe haven, has strengthened against the US dollar. If the correction in the stock market continues, the dollar should keep strengthening in the short-term. Over the longer-term, most factors suggest that the dollar should remain in a bearish trend. In a commentary published yesterday, we argue that economic data, sentiment and monetary policy are all working against the currency today. Our short-term and medium-term outlook on the dollar remains bearish.
USD/JPY is down today and currently trading above 108.80. EUR/USD is flat and trading above 1.2370. The pound is flat, and GBP/USD is currently above 1.3960.
Looking at US economic data this week, markets will be focused on more PMI surveys. Markit services (53.3) and composite PMIs (53.8) were fairly close to consensus expectations. ISM non-manufacturing PMIs were ahead of expectations (59.9). Later today, we’ll see the goods trade balance and JOLTS job openings. On Wednesday, we’ll see MBA mortgage applications and consumer credit. On Thursday, we’ll see initial jobless claims. Last week, core personal consumption expenditures met expectations while non-farm payrolls beat expectations.
Thanks to recent dollar weakness, we are downgrading the US dollar to bearish. Note that the currency is trading within normal conditions. This is based on technical indicators when looking at a weekly chart.