USD mixed, havens in demand – Scotiabank

The US Dollar (USD) drifted a little lower in quiet trade to start the week yesterday but scope for significant USD losses is limited currently, not least because the rise in US term rates remains hugely USD-supportive, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

USD mixed versus majors as havens outperform

“US bond yields have risen significantly since the Fed’s first rate cut in September—the worst response to the start of the Fed’s easing cycle in the last 30-35 years at least. The DXY is trading a little above estimated fair value, based solely on rate spreads. But the overvaluation is mild and the US election outcome has added to USD support as investors anticipate the potential impact of tariffs on exchange rates.”

“Still, the USD is trading a little more mixed today, with safe havens in demand around a pick-up in geo-political concerns. Ukraine wasted no time after the US permitted it to use US-supplied missile systems for attacks on Russian territory. Also, Putin approved an expanded nuclear doctrine that allows a nuclear response to a conventional attack. Stocks have fallen sharply in Europe, spilling over into US futures. Bonds are broadly higher.”

“The JPY and CHF are better supported among the major currencies, with the JPY getting the added support of warnings from the Japanese MoF that the authorities will act ‘appropriately’ against excessive moves. USD/JPY is down a little more than 0.5% on the day. With little data on tap from the US (Housing Starts and Building Permits), markets may continue to reflect the risk tone through the trading session today. The Fed’s Schmid (non-voter) speaks on the economic outlook just after 13ET.”