Forex Today: Dollar loses ground ahead of Fed’s blackout

Here is what you need to know on Friday, September 9:

The dollar came under renewed selling pressure during the Asian trading hours on Friday and the US Dollar Index declined to its lowest level below 109.00. In the absence of high-tier macroeconomic data releases ahead of the weekend, comments from central bankers will be watched closely by market participants. European Central Bank (ECB) President Christine Lagarde will speak at 0930. Before the Fed goes into the blackout period, Chicago Fed President Charles Evans, Fed Governor Christopher Waller and Kansas City Fed President Esther George will be delivering speeches. 

The risk-positive market environment seems to be weighing on the greenback on the last trading day of the week. The Shanghai Composite Index is up nearly 1% toward the end of the week and US stock index futures are rising between 0.3% and 0.5%. Meanwhile, the 10-year US Treasury bond yield stays relatively quiet at around 3.3%. Earlier in the day, the data from China showed that the Consumer Price Index (CPI) arrived at -0.1% in August.

On Thursday, FOMC Chairman Jerome Powell reiterated their commitment to do what’s necessary to battle inflation. “History cautions against prematurely loosening the policy,” Powell noted and the probability of a 75 basis points rate hike in September, as shown by the CME Group FedWatch Tool, climbed above 80%. On a more neutral note, Chicago Fed President Evans said that he was open-minded on a 50 or 75 bps hike at the next policy meeting. 

Following the selloff witnessed during ECB President Lagarde’s press conference, EUR/USD reversed its direction and climbed toward 1.0100. As expected, the ECB announced that it hiked its policy rate by 75 bps on Thursday. Commenting on the policy outlook, Lagarde said she didn’t know what the terminal rate was and explained that they will take necessary tightening steps to get to the 2% medium-term inflation target. “We think that it will take several meetings to get there,” Lagarde further elaborated. “Some people will ask how many is several? Well, it is probably more than two including this one but it is probably also going to be less than five.”

GBP/USD ended Thursday’s volatile session with small losses at 1.1500 before gathering bullish momentum early Friday. The pair was last seen rising more than 0.8% on the day at 1.1595. British Prime Minister Liz Truss announced on Thursday that the government will introduce a two-year “energy price guarantee” and explained that a typical household will pay no more than £2,500 a year on energy bills.

USD/CAD closed the second straight day in negative territory on Thursday and extended its slide toward 1.3000 early Friday. Statistics Canada will release the August jobs report later in the session. Investors expect the Unemployment Rate to edge higher to 5% from 4.9% and see the Net Change in Employment to arrive at +15,000.

After having registered impressive gains in the first half of the week, USD/JPY posted small losses on Thursday but turned south on Friday. Japanese Finance Minister Shunichi Suzuki repeated on Friday that they are closely watching the moves in foreign exchange markets and noted that they won’t rule out any options. At the time of press, USD/JPY was down more than 100 pips on the day at 142.75.

Gold fluctuated wildly in both directions on Thursday but closed the day in the red. With US T-bond yields struggling to continue to stretch higher, XAU/USD gained traction and was last seen posting strong daily gains above $1,720.

Bitcoin reclaimed $20,000 during the Asian trading hours on Friday and extended its rally beyond $20,500 into the European session. Ethereum gathered bullish momentum early Friday and rose above $1,700 for the first time in two weeks.