U.S. Dollar (DXY) Moves To New Highs Amid Flight To Safety

Key Insights

• U.S. dollar starts the week on a strong note as traders move out of riskier assets. 
• EUR/USD declined to 0.9930 as traders rushed to sell the European currency amid severe energy crisis in the EU. 
• Commodity-related currencies are moving lower as most commodities suffer a pullback on recession worries. 

U.S. Dollar Rallies To New Highs

The U.S. dollar started the week with strong rally as traders rushed to the safety of the American currency. The global market sell-off highlighted recession worries, providing additional support to the U.S. dollar.

The U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, is currently trying to settle above the 109 level. In case this attempt is successful, it will move towards the yearly highs near 109.30.

The U.S. dollar will remain volatile ahead of the Jackson Hole Economic Symposium, which begins on August 25. Fed Chair Jerome Powell is scheduled to speak on August 26.

The FedWatch Tool indicates that there is a 56.5% probability of a 75 bps rate hike at the next Fed meeting. The rising probability of an aggressive rate hike has pushed Treasury yields to multi-week highs. In case yields continue to rise, the U.S. dollar will get more support.

Euro Drops To Multi-Decade Lows As Traders Focus On Energy Crisis

EUR/USD declined towards 0.9930 as European natural gas prices hit new highs after Gazprom’s decision to halt supplies via Nord Stream 1 for three days.

The current sell-off is a major event for EUR/USD traders as the European currency has not been that weak against U.S. dollar since 2002.

GBP/USD has declined to yearly lows, although it should be noted that it traded even lower during the coronavirus-related sell-off in March 2020. Worries about the health of the UK economy continue to put pressure on the British pound, and it remains to be seen whether it will be able to break the current downside trend in the upcoming trading sessions.

Commodity-Related Currencies Retreat Amid Pullback In Commodity Markets

USD/CAD managed to settle above 1.3000 and is testing the 1.3050 level as traders focused on the pullback in commodity markets, which was bearish for the Canadian dollar.

Australian dollar and New Zealand dollar have also found themselves under pressure amid recession worries. AUD/USD is testing the support level at 0.6870, while NZD/USD is trying to settle below 0.6150.

In the near term, traders should focus on the dynamics of crude oil, which is trying to rebound despite global market sell-off. A continuation of this rebound may provide some support to commodity-related currencies.

Japanese Yen Retreats Ahead Of PMI Reports

The Japanese yen has lost its safe-haven status this year due to the dovish policy of the country’s central bank. USD/JPY continues to move higher and is testing the 137.50 level.

Soon, traders will have a chance to take a look at the latest PMI data from Japan, but it remains to be seen whether these reports will have any impact on the strong downside trend in the yen.

For a look at all of today’s economic events, check out our economic calendar.