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Here is what you need to know on Tuesday, September 1

September begins where August ended – dollar weakness. The fallout from Fed dovishness and hopes for a vaccine boost markets and weigh on the greenback. Manufacturing sector PMIs are awaited. 

The dollar is extending its decline, with the latest trigger coming from AstraZeneca. The pharma firm announced it will kick off a large, 50,000-strong Phase 3 of its coronavirus vaccine.

Bullish reports from Apple and Zoom add support, especially to tech equities. China’s Manufacturing Purchasing Managers’ Index beat estimates with 53.1 points in August, also adding to the positive mood.

The underlying driver is last week’s Federal Reserve’s dovish shift, allowing inflation to overheat. Richard Clarida, Vice-Chair of the Fed, played down additional policy steps such as Yield Curve Control or negative rates. Nevertheless, the prospects of long-term lower rates are weighing on the greenback.

US fiscal support: Talks between Democrats and Republicans remain at a standstill according to both sides, with aid to states remaining the main sticking point. The political background is President Donald Trump’s narrowing of the gap against rival Joe Biden, attributed to anger over unrest in various cities. 

For some market participants, the deadlock in Washington implies additional monetary support down the road.

The S&P 500 had its best August since 1986 and is on course to extend the rally. Gold is trading closer to $2,000 and silver is on the rise as well.

The ISM Manufacturing PMI is set to show ongoing industrial recovery while the employment component will probably point to weakness in hiring. The highly-regarded publication serves as a hint toward Friday’s Non-Farm Payrolls.

See ISM Manufacturing PMI Preview: Why only a leap can stop the dollar’s decline

Significant currency moves

EUR/USD is trading closer to 1.20, a two-year high. The German government is set to upgrade growth forecasts later in the day. Manufacturing PMIs are set to confirm weakness in France point to moderate expansion in Spain and Italy

GBP/USD is trading above 1.34 amid uncertainty regarding Brexit and a potential fuel tax hike as parliament returns to the session. The Markit/CIPS MAnufacturing PMI will likely confirm the read of 55.3 points for August. 

AUD/USD is trading above 0.74 amid the risk-on mood and despite the Reserve Bank of Australia’s decision to loosen the conditions of tapping into its funding facility. The RBA left rates unchanged at 0.25% as expected. 

USD/CAD is on the verge of breaking below 1.30. Oil prices are holding onto their gains, shrugging off the waning of hurricanes in the Gulf of Mexico. 

Cryptocurrencies have also been benefiting from the upbeat market mood. Bitcoin is above $11,700 and Ethereum close to $450. 

More Markets are Fed-dependent as ever, reaction to elections could surprise – Interview with Lior Cohen

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