Dollar remains under pressure but can US politicians agree on fiscal support?

New York (Aug 19)  The dollar has come under increasing pressure in recent days in a move that has now driven the greenback down to levels not seen since Q2 2018. With Treasury yields falling along with a bull flattening yield curve, whilst fx futures positioning continue to reflect a market massively short USD, the dollar seems to be in the midst of a perfect storm right now. The lack of consensus amongst US politicians has certainly played a role in the dollar weakness, with a package of fiscal support measures still some way off. Perhaps though there is some movement to come on fiscal support, with the Democrats supposedly willing to cut their demands “in half”. It is interesting to see this has just steadied a rocky boat for the dollar this morning (pulling gold also lower), but the storm has not cleared yet. A weaker dollar helps to fuel US equities on a bull run, and we saw the S&P 500 touching all-time highs during yesterday’s session.

The Fed minutes will certainly be eyed today, with traders looking for any signals of further imminent easing. Away from the US, Japanese trade data has come in slightly better than expected overnight. UK inflation has also surprised sharply to the upside this morning, similar to the US data surprise last week, and again likely to be a knee-jerk to economy re-opening and unlikely to be sustaining.

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