Forex Analysis: A Week of Dramatic Turns for Major Currencies
By Julie Fernandez, Senior Financial Analyst at Triangle Profits
This Week in Forex: A Tale of Two Currencies
Nov 19, 2023
The past week in the forex market has been nothing short of eventful, marked by significant movements in two of the world’s major currencies: the U.S. dollar and the Japanese yen.
Dollar’s Decline: A Closer Look
The U.S. dollar witnessed its second-steepest weekly drop against major currencies this year. This downturn is largely attributed to cooler-than-expected U.S. inflation data, which accelerated market expectations for a Federal Reserve rate cut, potentially as early as next year’s first quarter.
What’s Driving the Dollar Down?
Analysts like Bipan Rai from CIBC Capital Markets and Thierry Witzman from Macquarie in New York point to the data as indicative of progress on the inflation front and a possible fourth-quarter economic slowdown in the U.S. This slowdown is reflected in reduced pricing power and consumer enthusiasm compared to the previous quarter.
The Rising Yen: Breaking the 150 Barrier
In contrast, the Japanese yen, which has been broadly weakened by dollar strength this year, surged, breaking the 150 mark against the dollar for the first time in nearly two weeks. This rise represents a 0.69% gain for the yen. Lee Hardman, a currency analyst at MUFG, attributes this to growing global concerns about contracting growth, as well as Japanese trade terms being less affected by falling energy prices.
Sterling and Euro’s Response
The British pound sterling also saw a slight rise, despite weaker-than-expected retail sales figures in Britain. Meanwhile, the euro gained against the dollar following data confirming a sharp slowdown in year-on-year inflation in the euro zone.
Central Banks on the Move
Looking ahead, futures markets are pricing in significant rate cuts by the Federal Reserve and the European Central Bank. However, ECB policymakers have cautioned that they must be ready to raise interest rates again if necessary.
Concluding Thoughts
This week’s forex market activity underscores the dynamic and interconnected nature of global economies. As we navigate through these turbulent financial waters, staying informed and agile is key to making sound investment decisions.