Forex Today: Dollar benefits from risk aversion to start the big central bank week

Here is what you need to know on Monday, September 19:

The greenback started the new week on a firm footing with the US Dollar Index (DXY) rising to the 110.00 area following Friday's retreat. The cautious market mood ahead of key central bank events helps the dollar outperform its rivals as a safe haven. US stock index futures are down between 0.4% and 0.8% while the 10-year benchmark US Treasury bond yield stays flat at around 3.45% heading into the European session. Germany's Bundesbank will release its monthly report and NAHB Housing Index will be the only data featured in the US economic docket later in the day.

On Friday, the one-year and 5-year inflation expectations components of the University of Michigan's Consumer Sentiment Survey declined from August levels, forcing the DXY to erase a small portion of its weekly gains. 

Over the weekend, US President Joe Biden said that the US military would defend Taiwan in the event of an invasion by China. This comment seems to be causing geopolitical tensions to escalate at the beginning of the new week. "We are going to get control of inflation," Biden added.

EUR/USD closed the last three days of the previous week in positive territory and managed to close above parity on Friday. The renewed dollar strength, however, dragged the pair back below that level early Monday.

GBP/USD touched a fresh multi-decade low of 1.1350 last Friday before a modest recovery. The pair was last seen trading near 1.1400. UK markets will be closed on Monday due to the Her Majesty Queen Elizabeth II’s State Funeral.

USD/JPY reclaimed 143.00 early Monday and was last seen edging higher toward 143.50. The Bank of Japan is widely expected to keep its monetary policy settings unchanged later this week. 

Gold plunged to its weakest level since April 2020 on Friday at $1,653 on Monday but ended up closing the day in positive territory amid profit taking ahead of the weekend. XAU/USD, however, failed to build on Friday's gains and was last seen losing 0.5% on the day below $1,670.

Bitcoin lost more than 7% last week and came under heavy bearish pressure early Monday. BTC/USD was last seen trading at its lowest level since December 2020 below $18,500, down nearly 7% on a daily basis. Ethereum is trading at fresh two-month lows below $1,300 with a daily loss of nearly 3%.