Forex Today: US Dollar extends slide as US yields stretch lower
Here is what you need to know on Thursday, October 22:
The US Dollar (USD) struggles to find demand on Thursday, with the USD Index declining to its lowest level in three weeks near 101.50. The US economic calendar will feature weekly Initial Jobless Claims from the United States (US) and the preliminary October Consumer Confidence data from the Eurozone.
The USD weakened against its major rivals in the American session on Wednesday as risk flows dominated the action in financial markets. Following Tuesday's bullish action, Wall Street's main indexes opened higher and registered strong gains midweek, while the 10-year US Treasury bond yield extended its slide. In the early European session on Thursday, the 10-year yield stays below 5.1%, losing about 0.6% on a daily basis. Although US stock index futures trade in negative territory to reflect a risk-averse market atmosphere, the USD Index finds it difficult to gain traction.
Dollar softness persists as ING sees risks tilting further bearish
Analysts at ING observe that the Dollar “continues to trade with a soft undertone,” which they attribute to “some aftereffects of AI-related concerns (Corewave bonds had another wobble yesterday) and stretched longs/ short-term overvaluations being unwound.” They note that, after this adjustment, “the dollar no longer looks particularly stretched on our short-term valuation metrics,” but stress that the recent “softer dollar backdrop has shifted the balance of risks somewhat further in a USD-bearish direction.” Even so, ING continues to “favour a gradual and orderly dollar decline rather than a sharper depreciation,” arguing that “the broader Fed, oil and rates narrative remains supportive” of such a controlled move lower in the currency.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.53% | -0.67% | -0.53% | -0.65% | -0.76% | -0.60% | -0.61% | |
| EUR | 0.53% | -0.12% | 0.02% | -0.09% | -0.15% | -0.05% | -0.06% | |
| GBP | 0.67% | 0.12% | 0.15% | 0.06% | -0.01% | 0.08% | 0.11% | |
| JPY | 0.53% | -0.02% | -0.15% | -0.11% | -0.22% | -0.06% | 0.04% | |
| CAD | 0.65% | 0.09% | -0.06% | 0.11% | -0.11% | 0.10% | 0.08% | |
| AUD | 0.76% | 0.15% | 0.01% | 0.22% | 0.11% | 0.09% | 0.10% | |
| NZD | 0.60% | 0.05% | -0.08% | 0.06% | -0.10% | -0.09% | 0.02% | |
| CHF | 0.61% | 0.06% | -0.11% | -0.04% | -0.08% | -0.10% | -0.02% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Iran’s Foreign Minister Abbas Araghchi said on Wednesday that US must lift its naval blockade and show it’s serious about ending the war diplomatically, Bloomberg reported. “Iran is prepared to give diplomacy another chance if we see strong evidence of a sincere desire on the part of the US to achieve a just and honourable solution to permanently end this conflict,” said Araghchi. After posting marginal losses on Wednesday, crude Oil prices edge higher on Thursday, with the barrel of West Texas Intermediate (WTI) rising more than 1.5% on the day.
EUR/USD gains traction and trades marginally higher on the day, slightly below 1.1250. Nevertheless, the pair's upside remains capped as investors grow increasingly concerned about the political turmoil in France and the uncertainty surrounding the fiscal outlook. After rising above 5% for the first time since June 2002, the 10-year French bond yield continues to push higher on Thursday and was last seen fluctuating at around 5.05%.
GBP/USD closed in positive territory for the second consecutive day on Wednesday before entering a consolidation phase at around 1.3400 early Thursday.
Following Wednesday's indecisive action, USD/JPY remains under heavy bearish pressure on Thursday and trades at its lowest level since early October below 157.20.
Gold (XAU/USD) struggles to benefit from falling US yields and the broad-based USD weakness and trades slightly below $4,100 on Thursday, losing more than 1% on a daily basis.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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