Market lull may be short-living

FX:GBPUSD   British Pound / U.S. Dollar
Dollar is back on growth track. But how long?

The past week has been the worst period for greenback in the past two months, but Monday trading came in a positive tone due to the flattened risks associated with Hurricane Irma and the launch of North Korea's ballistic missiles.

The growth of new short positions is unlikely until Friday's inflation data, while a decrease in global risks has prompted investors to take interest in risky assets, forcing to cut some open shorts. Despite this, short positions on the US currency are at the 4-year peak, as the probability of an increase in the Fed rates continues to dwindle. The net position of large speculators in the euro fell to almost zero in the week ended September 5. The chances of an increase in the Fed rate in December increased from 31.1 to 41%. In general, including 2018, the futures market expects no more than one rate increase for federal funds rate. Dollar has also received more attention after news about eased required reserve ratio for Chinese banks. Expectations for the accelerated economic expansion of the country, the main trading partner of the US, were transformed into optimism in the US currency.

The price increase for August according to the consensus forecast should be 1.6% after 1.7% in July. Other macroeconomic readings including data on investment, construction, labor market showed some slowdown in the economy. Devaluation of the dollar is unlikely to have a quick effect on inflation , so it makes sense to form short-term outlook for the US currency based on a possible negative deviation in the data.

Risk-aversion recedes

Stock exchanges rushed to update records after a calm weekend, as concerns about the launch of the North Korea missile on the 69th anniversary of the formation of the state were not confirmed. Risk assets are experiencing a sharp drop in demand, gold has lost about 0.8% since the beginning of the Asian session.

BoE rate hike rumors

The British currency has grown to a maximum of three and a half weeks against the euro on Monday on rumors that the Bank of England could support the rate hike and give more optimistic growth forecasts at a meeting on Thursday. After strong production data released last Friday, the recent strengthening of the pound and its impact on exporters began to look less critical, which allowed investors to increase their long positions. Also, the pound's rise should have a deterrent effect on inflation , which remains subject to market speculation and will be clarified at the regulator's meeting on Thursday.

Arthur Idiatulin
Trade active: Trade has been triggered, now expecting gradual selloff ahead of BoE meeting
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This analysis is provided as general market commentary and does not constitute investment advice.
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