The dollar, yen and Swiss franc rose on Monday on safe-haven demand as fears of default by China's Evergrande nL1N2QM03G combined with persistent pandemic-related supply chain worries and concerns about how the Fed will set the scene for policy normalization this week.
Along with the Fed, the BOJ and BoE hold policy meetings.
EUR/USD recovered early losses in part due to doubts that the Fed could be as hawkish as once expected.
Shedding of financial market risk has been slowly brewing all month and the current shakeout comes as fiscal supports spawned by the pandemic fall away, persistent COVID spread and uncertainty about U.S. fiscal policy nL1N2QJ1L1.
Until Monday the markets suspected that Wednesday's Fed meeting would keep tapering on the agenda for the November meeting as policymakers await job-market improvement following August's poor payrolls result, but a falling stock market calls into question direct hints at tapering and rates projections bringing forward expectations for an eventual hike.
EUR/USD recovered to flat on the day from a 1.1700 low, where a huge 2.43 bln in option expiries stand on Thursday, in the wake of Wednesday's Fed meeting.
Prolonged negative or nearly negative euro zone debt yields have also given the euro some safe-haven status.
Hindering the dollar, long-term Treasury yields fell sharply and the front end of the curve removed the extra rate hike pricing that followed upbeat data last week.
EUR/USD charts remain bearish, but might need to see what the Fed does and says on Wednesday before taking on August's 1.1664 lows on EBS.
GBP/JPY's 1.16% dive and USD/JPY's 0.6% fall highlighted the risk-off flows.
USD/JPY tracked falling U.S. stocks, particularly the S&P 500's drop to its lowest in nine weeks and first daily trading range wholly below its 55-day moving average support since last November.
USD/JPY's September and mid-August lows at 109.11/115 are within reach.
Dip-buyers have prevailed near 109 since June, allowing specs to build up sizeable long positions, but a close below 109 could end the stalemate nL1N2QM1CI.
Sterling fell 0.65%, leaving limited space between the 1.3640 low by the pivotal 55-week moving average and July and August troughs at 1.3602/573.
And with the BOE meeting on Thursday, doubts are surfacing as to whether the MPC will be able to live up markets' H1 2022 rate hike expectations nL1N2QM11J.
The pound's outsized losses, highlighted by EUR/GBP's 0.61% rise, reflected its sensitivity to risk.
Aussie and most other high-beta and commodity or China-linked currencies suffered.
AUD/USD's 0.33% drop was a bit less than USD/CAD's 0.42% as Canadians go to the polls nL1N2QM10C.
USD/CNH was up 0.18%, following last week's drop to three-week lows, and getting close to a potential neckline of an inverted head-and-shoulders post-pandemic bottoming pattern nL1N2QM0ZD.
Bitcoin and ethereum tumbled to their lowest levels since early August before recovering losses from the 10% vicinity.
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