Talking Points:

  • US Dollar sinks as Fed rate hike chances fade
  • Rate-sensitive currencies broadly outperform
  • Event risk lull clouding the near-term outlook

The US Dollar sank in Asia Pacific trade, building on losses sustained in the prior session against a backdrop of deteriorating Fed interest rate hike prospects. The priced-in probability of a third increase in 2017 as reflected in Fed Funds futures slipped to 22.6 percent, the lowest yet this year. That sent the greenback to the weakest in 15 months against an average of its major counterparts.

Rates-sensitive currencies at both ends of the spectrum understandably outperformed. The high-beta Australian and New Zealand Dollars scored amid hopes that their US cousin won’t soon erase their yield advantage. At the other extreme, the perennially low-beta Japanese Yen and Swiss Franc also thrived as markets questioned the US currency’s ability to widen its interest rate lead.

Looking ahead, a tame offering of European and US economic data leaves markets without an all-encompassing focal point. That need not translate into a dull end to the trading week however. Indeed, the explosive USD selloff now underway was not apparently triggered by a singular catalyst, so momentum alone may yet prove sufficient to sustain existing dynamics.

On the other hand, the absence of a discrete driver leaves markets vulnerable to unscheduled headline risk. An unexpected turn in the trajectory of hurricanes Irma and Jose now menacing the Atlantic coast of the US or an eye-catching news item out of Washington DC may yet trigger an about-face reversal, for example. Quantifying the probability of such a scenario is all but impossible however.

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Asia Session

Yen, Commodity Currencies Capitalize as US Dollar Collapses

European Session

Yen, Commodity Currencies Capitalize as US Dollar Collapses

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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