U.S. Dollar (DXY) Tests New Highs As Rally Continues

Key Insights

• DXY managed to settle above the 110 level and tested the 110.50 level. 
• EUR/USD dropped towards yearly lows amid worries about the health of the European economy. 
• GBP/USD remained volatile as Liz Truss started working as the new UK Prime Minister.

U.S. Dollar Benefits From Rising Demand For Safe-Haven Assets

U.S. Dollar Index is testing new highs as demand for safe-haven assets remains strong.

Today, the U.S. released the final reading of the Services PMI report for August, which indicated that Services PMI declined from 47.3 to 43.7, compared to analyst consensus of 44.8.

Interestingly, ISM Non-Manufacturing PMI improved from 56.7 in July to 56.9 in August, while analysts expected that it would decline to 55.1.

The U.S. dollar is overbought, but traders remain focused on the safety of the American currency. In this environment, the U.S. dollar may gain upside momentum in the upcoming trading sessions.

EUR/USD Tries To Settle Below 0.9880

EUR/USD gained additional downside momentum and moved towards yearly lows as traders remained focused on the problems of the European economy.

European natural gas prices are moving lower, but it looks that this move is triggered by the closure of various factories. For example, ArcelorMittal has recently decided to shut a blast furnace in Germany due to high energy prices.

Currently, EUR/USD is trying to settle below the support at the 0.9880 level. In case this test is successful, EUR/USD will move towards new lows.

GBP/USD Is Mostly Flat As Traders Evaluate UK Plan To Support The Economy

GBP/USD continues to trade above the 1.1500 level as traders wait for the details of the new plan to support the struggling economy.

The new Prime Minister, Liz Truss, plans to freeze household energy bills, which should provide support for consumers. The plan will require up to 130 billion pounds and may have a material impact on UK government bond markets. Today, the yield of 10-year UK government bonds settled above the 3.00% level and made an attempt to settle above 3.15%.

From a technical point of view, GBP/USD must stay above 1.1500 to have a chance to gain sustainable upside momentum in the near term. In case GBP/USD declines below 1.1500, it may quickly move towards the recent lows near 1.1450.

Commodity-Related Currencies Remain Under Pressure

AUD/USD declined towards the 0.6750 level despite a rate hike from RBA, which decided to increase the interest rate from 1.85% to 2.35%.  NZD/USD moved towards 0.6050.

Meanwhile, USD/CAD continued to trade near 1.3150. USD/CAD traders are waiting for the BoC Interest Rate Decision, which will be released tomorrow. Analysts expect that BoC will raise the rate from 2.5% to 3.25%. Trading in USD/CAD may stay choppy ahead of this key event.

Japanese Yen Remains Under Huge Pressure

USD/JPY has recently made an attempt to settle above 142.90 as traders continued to sell the Japanese currency.

While USD/JPY is overbought, there are no positive catalysts for the Japanese yen. In addition, there are no signs of interventions from the BoJ, which is bearish for the yen.

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