USD
The US dollar was fairly flat during yesterday’s trading session as the summer holiday period is in full swing. The US dollar Index (DXY), which measures the value of the dollar against six other major currencies, retraced its recent gains from the previous two sessions, trading around 103.00 during the Asian session on Thursday. Markets are pricing in a roughly 66% chance of a 50 basis point rate cut from the Federal Reserve on 18th September, with a further two cuts expected through the rest of 2024. According to the CME’s FedWatch Tool, there is currently an 83% chance of the Fed’s benchmark fed funds rate hitting 4.25%/4.5% by the end of December. JPMorgan (NYSE:JPM) now thinks there is a 35% chance that the US will fall into recession by year-end, up from 25%. Its CEO, Jamie Dimon said he’s skeptical that inflation will return to the Fed’s 2% target.
EUR
The euro is still trading strongly against sterling and the US dollar as there was very little economic data released to alter its recent upward trend. The main reason for the recent strength in the euro against the US dollar has been as a result of a weak jobs market data print from the US last week, which has increased fears of a US recession in 2025.
JPY
The Japanese yen recovered its daily losses against the US dollar on Thursday. However, the USD/JPY pair received support following the comments from Bank of Japan Deputy Governor Shinichi Uchida, who said on Wednesday, “We won’t raise rates when markets are unstable,” according to Reuters. The Bank of Japan’s Summary of Opinions from the monetary policy meeting on July 30 and 31 showed that several members believe economic activity and prices are progressing as anticipated by the Bank of Japan. The members are targeting a neutral rate of “at least around 1%” as a medium-term goal.
Over the past few years, the carry trade – borrowing in a low-interest rate country to fund investment in higher-yielding assets elsewhere – has exploded because of Japan’s very low rates. The recent strength of the yen, accelerated by last week’s Bank of Japan interest rate rise, has forced investors to rapidly unwind their carry trades. This has helped bring about a turbulence in global markets, including a dramatic capital market sell-off on Monday, as investors rushed to dump assets they had purchased by borrowing in yen.
GBP
In a quiet night of trading following the recent volatility in FX markets, Sterling broke its three-day losing streak against the US dollar during the Asian session on Thursday. The recent move lower in the GBP/USD rate could be attributed to a stronger US dollar as the US Federal Reserve is widely anticipated to implement a more aggressive rate cut beginning in September. The UK economy emerged from the Covid-19 pandemic in a stronger state than previously thought, according to revised data. The Office for National Statistics said that it now estimated annual GDP growth for 2022 at 4.8%, which is 0.5% above its previous estimate of 4.3%.