US dollar bolstered by risk-off trade triggered by Evergrande concerns

Philip McHugh September 27th 2021 - 2 minute read

The US dollar rallied on Friday, with the safe-haven currency being carried higher by a prevailing risk-off mood.

Meanwhile, trade in the pound is mixed at the start of this week, with GBP/EUR ticking up to €1.1684 and GBP/USD buoyed at $1.3684. GBP/CAD is subdued at CA$1.7262, while GBP/AUD and GBP/NZD hold steady at AU$1.8804 and NZ$1.9487 respectively.

Looking ahead, will a strong US goods orders release help to strengthen the US dollar later this afternoon?

What’s been happening?

The US dollar ended last week’s session on a high, with investors favouring the safe-haven currency as renewed concerns over the potential collapse of Chinese construction giant, Evergrande, rippled through markets.

This upside in the US dollar was then reinforced by comments from Federal Reserve policymaker Esther George, who reaffirmed the Fed’s view that the criteria for the bank to start tapering its asset purchases has been met.

The euro, meanwhile, was mostly muted on Friday as EUR investors remained wary ahead of Germany’s general election over the weekend.

Further limiting the upside potential of the single currency was the publication of Germany’s IFO business climate index, which reported business morale in the country fell to a five-month low in September.

At the same time, the Pound was forced to relinquish a good portion of its post-Bank of England (BoE) gains at the end of last week’s session.

This came as concerns over potential shortages at petrol stations cast further doubts over the trajectory of the UK’s economic recovery.

What’s coming up?

Turning to the start of this week’s session, the only data release of note today will be the publication of the latest US durable goods orders release.

August’s figures are expected to report a rebound in order growth and could potentially bolster the appeal of the US dollar later this afternoon.

In the meantime, the result of Germany’s general election will be the primary focus for EUR investors today, as they brace for months of political wrangling over a new coalition government.

Finally in the absence of any GBP data releases today, the pound may remain vulnerable to concerns over the current state of the UK economy, with Sterling likely to falter as the country’s economic prospects for the last quarter of 2021 continue to worsen.

Written by
Philip McHugh

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