The US dollar is at the lows of the day against the euro, pound and commodity currencies. That’s a continuation of the price action from late last week.

The dollar ran higher on retail sales and WMT commentary last week but has slowly retraced (and more). That’s a concerning sign for the dollar bulls as it’s failed to rally on good news. The bond market is also signaling lower yield despite the rethink on the rate path in fed fund futures.

This could be two things:

1) Broader dollar deleveraging

I think that many in the market were frightened by the early-August episode and believe it’s a sign of things to come. There are so many examples in the past 20 years in markets where an August scare materialized into something real in the autumn and those memories are tough to shake. Many people are also anxious out the election and sitting on nice year-to-date gains so there is a real temptation to de-gross and cut exposure.

2) Looming economic weakness

If you look at the entire globe, it’s clear that higher interest rates have done their job. A slowdown is baked into most currencies but the US has defied that. One big reason is 30-year fixed mortgages and another is higher US fiscal spending. Eventually though, high rates will do their job, even if rates are slowly ratcheted down from here. The message is that: High rates still work. So there is a slowing coming to the US economy and retail sales numbers are backward-looking.

I can sympathize with both of those explanation, though I can also poke holes in them. It’s also August and a quiet week so it’s fanciful to try to explain every move.

All that said, these moves could well be part of a trend that’s just getting started.

Let’s see if cable can get back above 1.30:

GBPUSD 10 mins