Asian losses drag USD lower

Although gains on sterling were capped due to the UK summer bank holiday, the GBP/USD remains higher as risk aversion coming from falling Asian equities is likely to spill into the US session and drag the dollar lower. Falling Asian stocks and a 1% fall in S&P500 futures are causing a drag on the US dollar on Monday, which is a newly crowned risk-on currency.

In the European session, sterling maintained small gains, up 0.16% to $1.5409. Gains are capped; however, as UK trading is closed for holiday.

Markets have opened the week on a fairly bearish note, with China seemingly at the heart of the concern again, based on the idea that the Chinese Stability Fund will no longer be active in the market.

The greenback became the newly crowned risk-on currency. The next two weeks are expected to be highly volatile with the Federal Open Market Committee September meeting in primary focus. The stability in the financial markets is perceived as necessary in order for the Federal Reserve (Fed) to raise rates. Any sign of higher volatility and risk aversion diminishes Fed rate hike bets and drags the US dollar lower, and vice versa.