Following the dovish tones from the UK and Japan, as well as the unrest in the Middle East, on the eve of the non-farm payrolls report, the US dollar has risen for the fourth consecutive time!
The US dollar has shown strength in the foreign exchange market, rising for four consecutive days, setting the longest consecutive rise record in a month. The British pound and Japanese yen are weak, coupled with tensions in the Middle East, further pushing the US dollar higher. The market is focused on the upcoming US non-farm payroll report, which is expected to show that the cooling of the job market is slower than expected. Analyst Kathleen Brooks pointed out that a strong non-farm report could trigger market volatility. Uncertainties in the Federal Reserve's interest rate path and the US election have made traders cautious about the US dollar
In the foreign exchange market this week, the US dollar is undoubtedly the biggest winner. The British pound and the Japanese yen are weak, coupled with the escalation of the situation in the Middle East, further supporting the rise of the US dollar.
On Thursday this week, the Bloomberg Dollar Spot Index has risen for the fourth consecutive trading day, marking the longest consecutive rise in a month. The market's focus is on the upcoming US non-farm payrolls report, with traders expecting the report to show "the labor market cooling at a slower pace than expected."
Kathleen Brooks, research director at forex broker XTB, stated, "The risk of a strong September non-farm payrolls report could trigger larger than usual volatility in the US stock market and the US dollar, as risk aversion sentiment rises alongside the US non-farm payrolls report, creating a combination that could easily lead to market turmoil."
Due to the uncertainty surrounding the Federal Reserve's interest rate path and the US election, traders have been cautious about the US dollar, leading to the recent rebound being more driven by other currencies, with selling pressure on major currencies such as the British pound and the Japanese yen supporting the US dollar's rise.
On Thursday, the British pound fell by over 1% against the US dollar, after Bank of England Governor Andrew Bailey stated that if inflation remains low, more aggressive monetary easing policies will be implemented. As for the Japanese yen, Japan's newly appointed Prime Minister Yoshihide Suga recently stated, "The Japanese economy is not ready for another rate hike," causing market turmoil and further depreciation of the yen.
Jayati Bharadwaj, currency strategist at TD Securities, commented:
"We have consistently pointed out that the US dollar appears cheap and oversold, as market focus shifts from the US to other regions of the world, the US dollar is bound to rebound and rise... This seems to be becoming a reality, as US data stabilizes while data from other regions of the world slows down, we are reassessing the central bank trajectories of these economies."
Furthermore, the recent escalation of conflicts in the Middle East has also provided support for the US dollar. According to Bloomberg, Israel launched attacks on Lebanon earlier, and after Iran fired about 200 ballistic missiles at Israel on Tuesday, Israeli Prime Minister Benjamin Netanyahu vowed to retaliate. Some analysts point out that during periods of geopolitical pressure, the US dollar tends to rise as investors often seek US assets as safe-haven investments.
Helen Given, a forex trader at Monex Inc., stated, " Safe-haven buying and the fact that the US economy is not in serious trouble have boosted the US dollar today"