U.S. Dollar Erases Losses as Risk Aversion Fades; Economic Data in Focus
The U.S dollar reversed heavy losses on Tuesday, as risk appetite returned to the financial markets following another bout of North Korea jitters. Despite the modest gain, the greenback is in a firm downtrend that extends all the way back to the start of 2017.
DXY Stems Declines
The U.S. dollar index (DXY) was down around half a percent Tuesday before making a sharp U-turn later in the session. The DXY basket closed at 92.33, gaining 0.1% in the process. Modest gains continued early on Wednesday, with the index climbing another 0.1%.
It has been a disastrous week for the U.S. currency. Between Thursday and Friday, the greenback fell more than 1% to reach its lowest level since January 2015.
A weaker yen provided much of the catalyst for Tuesday’s sharp drop. The Japanese currency was down again Wednesday morning local time despite better than expected retail sales data.
Receipts at Japanese retail stores rose 1.1% in July and 1.9% annually, the Ministry of Economy, Trade and Industry reported. That was the ninth consecutive monthly gain.
As the following chart illustrates, the DXY has declined around 9.7% since the start of the year.
Outlook Remains Weak
The performance of the greenback is intricately tied to the outlook on the U.S. economy and financial system. If that’s the case, then the currency could be in store for a rough couple of months.
A triad of mega banks that includes HSBC, Citigroup and Morgan Stanley have warned that the end of the bull market is near. The banks say investors won’t be able to ignore valuation fundamentals and economic data for much longer, especially as these variables point to a downturn in the business cycle.
Even the Federal Reserve has maintained a cautious outlook on the economy – one that diverges from President Trump’s expectations.
Gold Maintains Bullish Bias
Gold’s safe haven status shined at the start of the week, with prices closing above $1,300.00 for the first time this year. Bullion eased off recent highs on Tuesday, but remained well supported near Monday’s settlement price.
December gold futures, the most actively traded futures contract, was last seen trading at around $1,318.00 a troy ounce.
Silver also benefited from the haven rally, rising to nearly three-month highs on the Comex division of the New York Mercantile Exchange. The grey metal last traded at around $17.51 a troy ounce.
Gold’s premium over silver has declined in recent sessions to 75.37 ounces. That’s how many ounces of silver are needed to buy one ounce of gold. The ratio peaked above 78.5 back in July.