Investors fled to the safety of gold, government bonds and the Japanese yen on Tuesday as geopolitics took centre stage.
After North Korea fired a missile over Japan, money flooded into gold, which rallied to a nine-month high of $1,325, and into yen, which strengthened to the low 108s against the dollar. Prices for Treasuries, gilts and bunds also rose, pushing yields down. The Dow Jones fell by 160 points.
Among Asian currencies, the South Korean won has been the day’s weakest, unsurprisingly. After rallying strongly last week and offering another good performance on Monday, the won fell, driving USD/KRW as high as 1128.6 from yesterday’s exchange rate of 1117.7, and JPY/KRW to 10.36, from 10.25.
The tragic US dollar story continues. EUR/USD met no resistance at all on its way to a multi-year high above 1.20 on Tuesday and USD/CNY crashed through 6.6 for the first time in fourteen months.
The US Dollar Index’s fall below 92.0 was perhaps most concerning. On long-term charts, the level marks major and minor turning points in the index from as far back as 1998 – turning points which look clean and crisp on monthly charts. A close on Thursday (the final day of August) below 92.0 would seemingly ‘confirm’ a break of the level and would suggest an even darker period ahead for the US currency.
The dollar has fallen in tandem with expectations for further US interest rate hikes. On Tuesday, prices in Fed funds futures indicated only a 35% probability of a quarter-point hike at or before the Federal Reserve’s December meeting. This had been close to 40% on Friday and a near certainty earlier in the year.
For those in the US watching their currency shrink by the day (certainly by the week), you can look to important US data this week, including Wednesday’s preliminary US GDP reading and Friday’s employment report, as potential forms of rescue. Although, in the current climate it would be unwise to get your hopes up.
As much as broad US dollar weakness has played a part, much credit should be given to the euro for its rally back above 1.20 (1.2051 as of writing). This year, the currency has made a mockery of fears that it would fall to parity with the dollar. It’s easy to forget that the euro fetched only 1.034 dollars in January. As reported on BestExchangeRates on Saturday, the single currency received its latest boost courtesy of ECB President Mario Draghi on Friday, after he failed to talk down the euro or make any reference to ECB concerns over the currency’s 12% rise against the dollar this year (now 14.5%).
Best of the day on Tuesday was not the euro, however. That honor fell to the Swiss franc, which was up marginally against the euro at the time of writing and which rallied to a two-year high against the dollar. EUR/CHF and USD/CHF now stand at 1.137 and 0.943 respectively.
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