The U.S. dollar reverted to its status as a traditional safe-haven yesterday as terrorist attacks in Turkey, Switzerland and Germany rattled investors. The greenback has long benefitted in times or financial or geopolitical chaos for its perceived safety. The dollar also received a boost yesterday when Federal Reserve Chair Janet Yellen expressed optimism that U.S. wages were set to extend gains.
The U.S. dollar extended its gains overnight, pushing to fresh 13-year highs against the Euro.
There is no major data slated for release in the States today, so expect the dollar to continue to take its cues from events abroad. There is a slew of data set for the second half of the week that will help dictate the dollar’s momentum over the last week of the year. Tomorrow will see the release of existing home sales, followed by durable goods orders, Gross domestic product and personal income on Thursday. New home sales and consumer sentiment will round out the week on Friday. Look for the potential of choppy trading on low liquidity as the week comes to a close as traders head out for the Christmas holiday.
The Euro came under renewed pressure as geopolitical events are likely to put additional pressure on pro-Europe governments. A truck crashed through a Christmas market in Berlin yesterday, killing 12. German Chancellor Angela Merkel said that the act is “assumed” to be an act of terror. Merkel is up for re-election next year and a terrorist attack on her watch will add to the anti-European party’s arsenal. The rise of populism across the continent has market participants worried and widespread political uncertainty is sure to fan the flames.
The Japanese yen tumbled more than one percent against the U.S. dollar overnight. As expected, the Bank of Japan kept its policy on hold. Interest rates are currently at -0.1% and the central bank plans to continue to purchase 80 trillion yen of government bonds annually.
The central bank did upgrade its assessment on the overall economy, partly due to a weakening yen. The yen has weakened 11% against the U.S. dollar since the election of Donald Trump on November 6th. A weaker yen will lift import price and could provide a much-needed boost to inflation.