Here is what you need to know on Tuesday, October 6:
The US Dollar (USD) stays resilient against its peers early Tuesday, with the USD Index staying in positive territory after posting modest gains on Monday. Later in the session, Eurostat will publish Eurozone Retail Sales data for August. In the American session, trade balance data from Canada and the US will be featured in the economic calendar. Investors will also continue to pay close attention to comments from the European Central Bank (ECB) and the Federal Reserve (Fed) policymakers in the second half of the day.
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 strongest against the Euro.
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).
The benchmark 10-year US Treasury bond yield edged higher on Monday and supported the USD. However, a slight improvement seen in the risk mood, as reflected by the bullish action seen in Wall Street's main indexes, capped the USD's upside. US President Donald Trump signed an executive order to ease restrictions on the use of a tax-exempt variety of diesel late Monday. Trump explained that the measure would “officially waive the off-road requirement and allow anyone to purchase tax-free, red-dyed diesel for any reason.”
Meanwhile, crude Oil prices continue to ease despite news of Yemen's Houthi carrying out three military operations using ballistic and cruise missiles and drones against airports, an oil facility, and military sites across Saudi Arabia. After losing about 2% on Monday, the barrel of West Texas Intermediate (WTI) trades below $88 early Tuesday, down nearly 1% on the day.
EUR/USD closed in negative territory on Monday as the uncertainty surrounding France's fiscal outlook cause investors to doubt the ECB's ability to tighten the policy. After losing 0.3% on Monday, EUR/USD struggles to stage a rebound and trades a tad above 1.1200 in the European morning on Tuesday. Earlier in the session, the data from Germany showed that Factory Orders declined by 10.6% on a monthly basis in August, missing the market expectation for a 1% contraction by a wide margin.
Euro under pressure as French bond stress keeps EUR/USD risks skewed lower
Analysts at ING note that, “alongside a direct – albeit so far relatively contained – build-up of fiscal premium, the Euro continues to suffer from an unwinding of ECB rate hike expectations due to French bond turbulence,” leaving “risks firmly on the downside for EUR/USD.” They point out that “some relief in French bonds yesterday helped EUR/USD recover to just above 1.120 after a fall to 1.1160,” but add that “we don’t have much confidence in a sustained rebound.” With “the fiscal risk premium still relatively limited,” ING sees “scope for EUR/USD to test 1.110 or even 1.100 if bond market stress intensifies.”
Bank of Japan (BoJ) Governor Kazuo Ueda said on Tuesday that the Japanese economy is recovering moderately albeit with some weaknesses, and added that the underlying inflation is approaching 2%. USD/JPY stays relatively quiet above 158.00 in the European morning on Tuesday after posting marginal gains on Monday.
GBP/USD holds steady at around 1.3200 in the European session on Tuesday. The pair declined on Monday but it managed to limit its losses as the British Pound captured capital outflows out of the Euro.
Gold (XAU/USD) closed flat on Monday as the broad-based USD strength and rising US T-bond yields made it difficult for the precious metal to gather strength. XAU/USD edges lower toward $4,100 early Tuesday.
Commenting on Gold's near-term outlook, ING noted that "any further upside could be constrained, with “gains [likely to] remain capped by elevated Treasury yields, persistent inflation concerns and a firmer US dollar.”
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.
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.