Forex Today: US Dollar losses deepen as US yields fall further

Markets in focus for Thursday, 22 October:

Weekly Initial Jobless Claims from the United States (US) and preliminary October Consumer Confidence figures from the Eurozone feature on Thursday's US economic calendar. Ahead of the releases, demand for the US Dollar (USD) remains subdued, with the USD Index slipping to a three-week low near 101.50.

Risk appetite set the tone across financial markets during Wednesday's American session, leaving the USD weaker against its major counterparts. Building on Tuesday's advance, Wall Street's leading indices opened higher and posted sizeable midweek gains, as the 10-year US Treasury bond yield continued to fall. By early European trading on Thursday, the 10-year yield remains below 5.1%, down about 0.6% on the day. US stock index futures, however, are trading lower, signalling a risk-averse mood that has yet to help the USD Index regain momentum.

Dollar remains under pressure as ING flags greater downside risks

The Dollar “continues to trade with a soft undertone,” according to ING analysts, who point to “some aftereffects of AI-related concerns (Corewave bonds had another wobble yesterday) and stretched longs/ short-term overvaluations being unwound.” Following that adjustment, they say “the dollar no longer looks particularly stretched on our short-term valuation metrics,” although the recent “softer dollar backdrop has shifted the balance of risks somewhat further in a USD-bearish direction.” ING nevertheless continues to “favour a gradual and orderly dollar decline rather than a sharper depreciation,” on the grounds that “the broader Fed, oil and rates narrative remains supportive” of a controlled fall in the currency.

According to Bloomberg, Iran’s Foreign Minister Abbas Araghchi said on Wednesday that the US must remove its naval blockade and demonstrate a genuine commitment to ending the war through diplomacy. Araghchi said: “Iran is prepared to give diplomacy another chance if we see strong evidence of a sincere desire on the part of the US to achieve a just and honourable solution to permanently end this conflict,” After modest losses on Wednesday, crude oil prices are moving higher on Thursday, with West Texas Intermediate (WTI) up more than 1.5% per barrel on the day.

EUR/USD is edging up on the day as it gathers momentum, trading just below 1.1250. Growing investor unease over France's political turmoil and uncertain fiscal outlook is nonetheless limiting the pair's gains. Having exceeded 5% for the first time since June 2002, the French 10-year bond yield is climbing further on Thursday, with the latest trading around 5.05%.

GBP/USD is consolidating near 1.3400 early on Thursday, after Wednesday brought its second successive positive daily close.

After an inconclusive session on Wednesday, USD/JPY faces sustained heavy selling pressure on Thursday, trading below 157.20 at its weakest since early October.

Gold (XAU/USD) is down more than 1% on Thursday, trading just below $4,100 despite lower US yields and widespread USD weakness, from which it is struggling to draw support.