Market Drivers – US Session: US Dollar Surges on Risk Aversion

The U.S. Dollar surged on Wednesday, driven by increasing risk aversion in global markets. This move reflects a widespread challenge for central banks: battling a slowing economy while still contending with stubborn inflation.

The Dollar Index (DXY) rose by over half a percent, reaching its highest level in nearly two weeks. Ahead of Friday’s key U.S. PCE inflation data, investors are now turning their attention to Thursday’s U.S. GDP report.

EUR/USD declined, unable to hold above the 1.1800 level. Mixed European Purchasing Managers’ Index (PMI) numbers, particularly a worse-than-expected manufacturing outlook, contributed to the Euro’s weakness.

GBP/USD dropped to a three-week low, continuing its recent slide after a strong technical rejection at 1.3700. A speech from Bank of England (BoE) policymaker Megan Greene, who called for central banks to be more cautious with interest rates, added to the currency’s pressure.

The Swiss Franc (CHF) remained steady against the U.S. Dollar as traders prepare for Thursday’s SNB interest rate decision. The central bank is widely expected to keep its rate at 0.0%, though its long history of negative rates remains a key consideration.

USD/JPY jumped above its 200-day moving average, reaching 148.80 as traders await the upcoming Tokyo CPI inflation report. The Bank of Japan (BoJ) has continued to resist raising rates, concerned that inflation could eventually fall back into deflation.

Gold (XAU/USD) snapped its three-day winning streak, pulling back from record highs. The recent rally in gold prices has highlighted underlying market tensions, including concerns over a potential U.S. government shutdown.