Forex Today: US Dollar struggles, Gold glitters after China rate cut; Fedspeak awaited

Here is what you need to know on Wednesday, September 25:

Following another record close for Wall Street indices, the Asian equity markets also maintained a buoyant tone, led by the ongoing rally in Chinese stocks. The market’s optimism was enhanced by the People’s Bank of China (PBOC) cut to the one-year Medium-term Lending Facility (MLF) rate from 2.30% to 2.0%. The MLF rate reduction is one such measure among a host of other stimulus efforts rolled out by China lately to spur economic growth.  

Traders brushed aside brewing Middle East tensions, with the latest news citing that an “Israeli airstrike in Beirut killed a senior Hezbollah commander on Tuesday, heightening fears of a full-scale war amid increasing cross-border rocket attacks between both sides,” per Reuters.

As risk appetite remains in vogue, the safe-haven US Dollar (USD) licks its wounds alongside the US Treasury bond yields, having witnessed a fresh leg lower in early Asian trades. The USD was thrown under the bus against its major rivals in  Tuesday’s American trading on China’s stimulus-driven risk flows and weak US Conference Board (CB) Consumer Confidence and regional activity data. Weak US data ramped up bets for another outsized Federal Reserve (Fed) rate cut in November.

The CB Consumer Confidence Index dropped to 98.7 this month from an upwardly revised 105.6 in August, registering the largest decline since August 2021. Meanwhile, The Richmond Fed index fell to a 52-month low of -21 from a prior low of -19 in August and a low before that of -17 in July.

Markets are currently pricing in about a 60% chance of such a move, the CME Group’s Fed WatchTool shows. For the next two Fed meetings, rate futures are implying more than 80 bps in cuts. Additionally, the US Dollar also bore the brunt of the sell-off in US Treasury bond yields across the curve, triggered by a moderate auction of the US two-year government bonds. 

The Greenback’s fate remains in the hands of the persisting risk trends and a speech from Fed Governor Adriana Kugler, in the absence of any top-tier US economic data release. Kugler is due to speak about the economic outlook at the Harvard Kennedy School, in Cambridge, later on Wednesday.

Across the FX board, AUD/USD hangs near $0.6900, close to the highest level since February 2023. Softer Australian monthly Consumer Price Index (CPI) data added to the dovish bets for an RBA rate cut. Australia’s CPI rose 2.7% YoY in August, down from 3.5% in July and back within the RBA’s 2%-3% target range. The risk-off mood, however, keeps the higher-yielding Aussie afloat.

USD/JPY stays on the front foot above 143.00 after facing rejection at 143.50. The pair draws support from prevalent risk-on sentiment, which weighs on the safe-haven Japanese Yen. The upside appears capped due to the recent US Dollar weakness.

USD/CAD holds lower ground, eyeing a test of 1.3400, despite the renewed weakness in Oil price. The black gold reverses the latest upside on renewed concerns that China's stimulus plans may not be enough to shore up demand for fuel in the world’s top consumer. WTI is down 0.35% on the day to trade near $71.

GBP/USD is consolidating just below 30-month highs, as risk flows dominate and underpin the risk currency – the Pound Sterling. Bank of England (BoE) Governor Andrew Bailey said Tuesday, “I'm very encouraged that the path of inflation is downwards therefore I do think the path for interest rates will be downwards, gradually.” His dovish comments failed to deter GBP buyers.

EUR/USD is approaching the August high, battling 1.1200 in early Europe. Increased bets for large Fed rate cuts outweigh the weakening Euro area growth prospects, supporting the pair.  

Gold price keeps pushing higher, currently holding the renewed uptick to a fresh record high of $2,671. Overbought conditions on Gold’s daily chart point to a potential corrective decline in the near term. Traders look to Fed official Kugler’s speech for fresh policy cues.