The US dollar hit its lowest level this year on Tuesday as market participants awaited the Federal Reserve’s next interest rate cuts.
The dollar fell to levels not seen since early January, reflecting expectations that the U.S. Federal Reserve will begin cutting interest rates next month.
This decline comes in light of the “soft landing” and lower interest rates, which negatively affects the dollar.
Currency traders are now focused on Federal Reserve Chairman Jerome Powell’s upcoming speech at the Jackson Hole Symposium on Friday, where he is expected to offer insights into the future path of US interest rates.
After strong retail sales figures eased fears of an impending recession, markets are now pricing in the possibility of the US Federal Reserve cutting interest rates by a quarter percentage point three to four times before the end of the year.
Earlier, traders had expected up to five cuts this year after the weak jobs report.
Asset managers have shifted from a very positive view of the dollar to a neutral stance over the past two years.
The outlook for the US dollar will depend on a clearer understanding of the Fed’s easing path.
It’s not just about the Fed.
The dollar’s decline was also driven by the unwinding of popular so-called “carry trades,” where investors borrow yen at low interest rates and use it to buy higher-yielding currencies such as the U.S. dollar.
They then invest in bonds, stocks or other financial instruments denominated in these higher-yielding currencies.
In simple terms, as long as the yen remains weak against the dollar, the carry trade remains profitable. But when the yen appreciates, the carry trade may decline, which leads to volatility in the global market as investors are forced to sell their positions funded by the carry trade.
For example, on July 31, Bank of Japan raises interest rates unexpectedly This indicated the possibility of further gains. This led to a significant strengthening of the yen against the dollar, moving from around 154 to 141 in six trading days, or over 1200 pips!
On August 6, the Bank of Japan announced Deputy Governor Uchida explained, No further rate hikes are planned anytime soon, which has weakened the yen and sent the USD/JPY pair higher by more than 600 basis points!
Yen still the main driver
In fact, the Japanese yen remains the main driver of currency market volatility.
So while everyone and their moms are focused on Fed Chair Powell’s upcoming appearance at Jackson Hole, there may be someone else to watch out for…
Two hours before Powell’s speech, Bank of Japan Governor Ueda to Speak at Japanese Parliament.
If Uida takes more violent A more hawkish Fed stance on raising interest rates than expected could lead to a pullback in the yen carry trade (again), creating massive instability in the global market (again), including all major currencies.
Be careful out there!
Forex Market Drivers
Let’s review the price action in Forex today.
Which currency pairs made the biggest gains today?
New Zealand Dollar/US Dollar He was the leader of the group, and got 0.61% or 37 points.
As explained by us Foreign exchange market drivers page, New Zealand Dollar/Canadian Dollar and EUR/USD He won silver and bronze today.
Looking at NZD/USD Trend Follow RatingIt shows rising classification.
The currency pair managed to climb back above all its major moving averages, which are now acting as dynamic support areas.
But NZD/USD Overbought/Oversold Rating He appears “Overpriced“
Which currency pairs lost the most today?
USD/CHF He was the biggest loser, as he fell. 1.02% or 88 points.
Looking at USD/CHF Pivot PointsThe price appears to be trading near multiple pivot point levels.
currency strength
What is the overall strength or weakness of the individual major currencies today?
Based on currency strength meter On MarketMilk™, Swiss Franc It was, without a doubt, the strongest currency, while US Dollar It was the weakest currency.
If we dig a little deeper and look at how the major currency pairs work Moved in the last 24 hoursWe can see how the NZD/USD pair strengthened across all trading sessions.
Short term currency trends
When it comes to Short term trend strength, New Zealand Dollar Shows the greatest upward force.
the US Dollar Shows the most downward force.
Heat map of currencies
If we take a look In our country Heat map of the currencyWe can see the weakness US Dollar Across time frames.
currency fluctuations
What is the most volatile currency today?
Based on our website Currency Volatility Meterthat it JPY.
Check the increase in Today’s volatility for major currenciesJust notice how. volatile JPY It has been within the last 24 hours.
What is the most volatile currency pair today?
On condition JPY Which currency pair was the most volatile?
USD/JPYY was the most volatile, Moved 1.49% or 214 pips.