US Dollar Shows Little Hope for Rebound on Further Record-Lows

Euro bulls sent the single currency to yet another record, touching heights of $1.4569 before a marginal retracement through the New York afternoon. The British Pound likewise saw strong bids through Tokyo and London trading hours and established fresh 26-year peaks of $2.0905. Anti-US dollar sentiment continued to bolster the Canadian dollar, which shows few signs of slowing its ascent at C$0.9240 per USD. A bounce in global equity markets was not enough to keep the dollar bid against the Japanese Yen, and indeed the greenback remained relatively unchanged at 114.52 yen through time of writing.

The lack of economic data did not stop traders from forcing strong price movements across major currency pairs, and pure market flows away from the greenback served as the only real justification for the move. One prominent bank claimed that the relative underperformance of US equity markets encouraged many clients to pursue risky asset classes in Europe and elsewhere. Others cited further sovereign bank reserve diversification as a prominent driver of daily exchange rates. Whatever the underlying justification for the dollar rout, it remains relatively clear that speculators show little interest in forcing a worthwhile correction in the downtrodden currency. The trade-weighted dollar index has now fallen in seven of the past nine active days, setting fresh-record lows of 75.99 at time of publication. Given such overwhelming bearish momentum, we see little reason for a dollar bounce through subsequent currency trading. 

US equity markets proved far more fortunate through NYSE price action, with the Dow Jones Industrial Average adding 50 points to 13,591. A surge in energy stocks pushed broader indices higher, and the S&P 500 added 0.5 percent to 1,510. Tech stocks were the smallest gainers through the session, however, with the NASDAQ Composite a mere 0.2 percent improved to the psychologically significant 2,800 mark.

US Government Treasury yields were slightly higher through the trading session, as the 10-year added 2 basis points to 4.35 percent. Yet shorter-dated yields remained relatively unchanged at recent 26-month lows of 3.67 percent. Speculators seem convinced that the Federal Reserve will continue to cut short-term interest rates through the medium term, and money market rates continue to decline through the period. In fact, Fed Funds Futures now show a 64 percent chance of an FOMC interest rate cut on its December 11 meeting. 

Written by David Rodríguez, Currency Analyst for DailyFX.com