Dollar Softness Continues Amid Uncertainty Over US Policy
The US dollar has started the week on a soft footing as investors await fresh policy updates from the White House. The market is looking for signs of economic recovery and fiscal consolidation, particularly after the recent stress in the Treasury market. However, the situation remains uncertain, with many predicting further dollar losses due to what some call the 'debasement' trade.
The US Treasury Secretary, Scott Bessent, has announced a new set of sanctions on Iran, which could potentially lead to higher tensions and a negative impact on the dollar. On Thursday, there will be a $44 billion auction of seven-year Treasuries, which will also be closely watched. Additionally, this week's key releases include US core PCE inflation data for July and Kevin Warsh's keynote speech at the Jackson Hole symposium.
In terms of positioning, asset managers and leveraged funds have been buying euro contracts, indicating that speculators are underweight the euro. This could lead to a stronger euro if risk assets continue to perform well. The Canadian dollar has come under pressure due to trade tensions with the US, but some analysts expect it to recover once USD/CAD reaches 1.380/3910.
The Central Bank of Turkey has announced that it will restart one-week repo operations, which is seen as a sign of confidence from local policymakers. This move could lead to lower short-dated implied yields and continued support for the lira in carry trades.