U.S. Dollar Retreats Amid Strong Moves In Debt Markets

Key Insights

• U.S. dollar retreats as Treasury yields pull back from highs. 
• GBP/USD enjoys strong support as traders hope that Rishi Sunak will fix the economy. 
• USD/CAD is moving lower ahead of the BoC Interest Rate Decision, which will be released tomorrow. 

U.S. Dollar Is Under Pressure

U.S. Dollar Index gained strong downside momentum and made an attempt to settle below the 111 level as Treasury yields pulled back from their recent highs. The yield of 10-year Treasuries declined from 4.25% to 4.08%.

Today, the U.S. released Case-Shiller Home Price Index report for August, which indicated that home prices declined by 1.6% month-over-month, compared to analyst consensus of -0.7%. This is a second decline in a row, which is not surprising as mortgage rates are at multi-decade highs.

CB Consumer Confidence report indicated that Consumer Confidence declined from 107.8 in September to 102.5 in October, compared to analyst consensus of 106.5.

Both reports show that high interest rates have started to put material pressure on the U.S. economy. Not surprisingly, some traders are ready to bet that the Fed will be forced to be less hawkish, which will be bearish for the U.S. dollar.

EUR/USD Attempts To Settle Above 0.9950

EUR/USD is currently trying to settle above the 0.9950 level as traders are focused on the general weakness of the U.S. dollar during today’s trading session.

The situation in the European debt markets improved, which provided additional support to the European currency.

In case EUR/USD manages to settle above 0.9950, it will move towards the next resistance level, which is located at 0.9975. A successful test of this level will push EUR/USD towards the resistance at 1.0000.

On the support side, the 50 EMA at 0.9910 will serve as the first support level for EUR/USD. A move below this level will push EUR/USD towards the support at 0.9870. A successful test of this level will open the way to the test of the next support level at 0.9850.

GBP/USD Rallies As Traders Bet That Sunak Will Fix Problems

GBP/USD gained strong upside momentum and moved towards the 1.1500 level on hopes that Rishi Sunak will stabilize the UK economy.

The yield of 10-year UK government bonds has moved towards the 3.60% level.  Back on October 12, the yield of 10-year UK government bonds touched highs near 4.63%, so the recent move was significant.

In the near term, the dynamics of GBP/USD will depend on the political developments in the UK as traders will stay focused on the first moves of the new Prime Minister.

USD/CAD Tests Support At 1.3650

USD/CAD is currently trying to settle below the support at 1.3650 while traders prepare for the BoC Interest Rate Decision, which will be released tomorrow. The BoC is expected to raise the interest rate from 3.25% to 4%.

Other commodity-related currencies also enjoy strong support. AUD/USD has recently made an attempt to settle above 0.6400, while NZD/USD moved above the 0.5750 level.

USD/JPY Is Moving Lower As Interventions Helped Stabilize The Yen

USD/JPY moved towards the 148 level as recent interventions from the BoJ managed to stop the strong rally.

USD/JPY continues to trade below the key 150 level, and it looks that bulls will need additional catalysts to test this level as the BoJ may intervene again.

At the same time, the fundamental situation remains unfavorable for the Japanese yen as the Fed will soon raise rates while the BoJ sticks to its ultra-dovish policy.

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