USD Rebounds Despite Softer Policy Expectations

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This is a guest post by Vikas Lakhwani, Chief Revenue Officer at CPT Markets

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The US dollar continues its rebound after the selloff that followed the Federal Reserve’s meeting last week. Some doubts persist regarding the end of the current rate hike cycle, however, expectations lean toward a softer monetary policy, especially following the release of disappointing US job data last Friday. Market expectations, in addition to retreating treasury yields, could continue to weigh on the US dollar index which remains below last month’s trading range. The currency could see some volatility as traders await comments from Jerome Powell this week.

The Euro recorded some corrections today, erasing some of the gains from the previous week, due to concerns around economic data from the euro area and Germany in particular. Despite its rebound since the beginning of October, the European currency could remain exposed to the downside in particular against the US dollar which continues to see a resilient economy and higher yields.

The Japanese yen remains under pressure due to the wide gap between Japanese and US yields. As a result, the yen could continue to see selling pressures as traders favor currencies with higher yields. However, the possibility of an intervention from the Bank of Japan continues to cast a shadow on the pair’s direction and could limit the upside potential of the dollar.

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