USD edges lower, Gold rally extends - Scotiabank

The US Dollar (USD) is marginally softer, notching up a third day of losses in Dollar Index (DXY) terms, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD edges lower for a third day as Fed policy outlook weighs

"Movement across the major currencies is, for the most part, limited, however as investors await developments on US/China trade and the US government shutdown. The NZD and GBP are leading gains for the core majors and while the JPY is modestly softer on the session, dollar/Asia is mostly lower as regional authorities take action to stem pressure on their currencies amid uncertainty over trade. Global stocks are generally firmer and US equity futures are in the green. Core bond markets are steady to marginally higher overall while OATS are underperforming slightly as French PM Lecornu negotiates no-confidence motions in parliament."

"Meanwhile, Gold continues to advance, making a new cycle high a short while ago after dropping nearly 1% in Asian trade. Gold is up nearly 6% on the week so far. Crude is a little firmer, reflecting US efforts to persuade Asian partners to drop Russian oil purchases. In the absence of fresh, tier 1 data from the US-- or other developments--the USD may continue to drift lower. The Fed's Beige Book yesterday reflected an economy that is largely treading water since the last report but did note that tariffs were helping push inflation higher."

"The update suggests ongoing tension between the Fed's dual mandates but swaps continue to reflect 100% confidence in a 25bps rate cut by the FOMC later this month and a further 25bps cut in early December. The outlook for easier Fed monetary policy and narrower spreads (versus the USD's major peers) should constrain dollar gains generally. US economic releases are still populating the calendars but most of the data won't be seen today as the US government shutdown extends. It's another full day or central bank speaking engagements though, with key officials from the Fed BoE and ECB on tap over the course of the session. On the charts, DXY losses through minor support in the upper 98 area points to losses extending towards 97.80/00 at least to fill a small gap on the chart."