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Market risk aversion demand rebounded, and the US dollar index rose on the 1st

2024-08-02

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As geopolitical tensions and falling prices of risky assets pushed up safe-haven demand, the US dollar rose against the euro (1.0790, -0.0001, -0.01%), the British pound (1.2725, -0.0012, -0.09%), the Canadian dollar and the Swedish krona on the 1st, and weakened against the Japanese yen (149.22, -0.0800, -0.05%) and the Swiss franc. The US dollar index (104.3519, 0.0158, 0.02%) rose in the overnight market, fell significantly in the morning of the day, and then continued to strengthen. The US dollar index rose at the end of the day.

The US dollar index, which measures the US dollar against six major currencies, rose 0.3% on the day and closed at 104.420 at the end of the foreign exchange market.

Karl Schamotta, chief market strategist at Cambridge Global Payments, said that the threat of conflict in the Middle East supports the safe-haven demand for the US dollar.

Shamota also said that although Fed Chairman Powell was extremely dovish at the press conference on July 31, the monetary policy decision released by the Fed on the same day did sound more balanced.

On the same day, global risk asset prices fell significantly overall, and the market's risk aversion demand rebounded significantly, providing support for safe-haven currencies.

Vladimir Zernov, a market analyst at the foreign exchange information website FXEmpire, said on the same day that although the US manufacturing sentiment index released by the Institute for Supply Management on the same day was disappointing, the US dollar index strengthened. Overall, the data released on the same day highlighted the challenges currently facing the US manufacturing industry. U.S. Treasury yields fell on the day, but this did not put pressure on the dollar.

Zernov said that as traders focused on the higher unemployment rate in the eurozone, the euro weakened against the dollar. Data released earlier in the day by the European Union's statistical department showed that the unemployment rate in the eurozone in June was 6.5%, higher than 6.4% in the previous month, in line with market expectations.

Jerry Chen, a senior analyst at foreign exchange broker Gain Capital, said that on one hand, the Federal Reserve gave the green light to interest rate cuts, and on the other hand, the Bank of Japan's hawkish combination of "interest rate hikes + balance sheet reduction + intervention" narrowed the 10-year bond yield spread between the United States and Japan to around 3%, the lowest level since May 2023.

Jerry Chen said that it is undeniable that the interest rate gap between the United States and Japan is still large, and carry trades may also make a comeback. Therefore, it is not ruled out that the USD/JPY exchange rate will stop falling near the trend line of 148.30 and correct the oversold technical indicators. However, the direction of least resistance for the USD/JPY exchange rate is still downward, and a moderate rebound may become a potential opportunity for shorts. After breaking the key trend line, it may fall to the December low of 140.

The Bank of England announced a 25 basis point cut in the benchmark interest rate to 5% on August 1. Although this interest rate cut was in line with market expectations, the pound weakened significantly.

As of the close of New York foreign exchange market, 1 euro was exchanged for 1.0784 US dollars, lower than 1.0827 US dollars on the previous trading day; 1 pound was exchanged for 1.2727 US dollars, lower than 1.2855 US dollars on the previous trading day.

1 US dollar was exchanged for 149.56 Japanese yen, lower than 150.48 Japanese yen on the previous trading day; 1 US dollar was exchanged for 0.8729 Swiss francs, lower than 0.8793 Swiss francs on the previous trading day; 1 US dollar was exchanged for 1.3886 Canadian dollars, higher than 1.3795 Canadian dollars on the previous trading day; 1 US dollar was exchanged for 10.7396 Swedish kronor, higher than 10.7015 Swedish kronor on the previous trading day.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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Market risk aversion demand rebounded, and the US dollar index rose on the 1st

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