As we enter another week of trading, all eyes are on the movements of currency pairs involving the US Dollar (USD). Last week, the USD showed its strength against major counterparts. This affected currencies like the British Pound, Euro, and Canadian Dollar, while the Chinese Yuan and Australian Dollar fared better.
According to Daily FX, here are a few insights and potential trends to keep an eye on in the currency pairs involving the US Dollar (USD).
US Dollar Performance and Currency Movement
During the previous week, the US Dollar exhibited a predominant trend of outperforming its major counterparts. Among the notable underperformers were the British Pound, Euro, and Canadian Dollar, while the Chinese Yuan and Australian Dollar displayed better resilience. Shifting our focus to commodities, gold showcased a strong performance, while crude oil prices faced a decline.
Market Reaction to Federal Reserve Rate Outlook
The financial markets have been progressively incorporating an elevated terminal rate projection from the Federal Reserve since the start of the month. This shift has led to a noteworthy steepening of longer-term Treasury yields in comparison to shorter-term ones. Market indicators suggest that, since July 31st, there has been an addition of more than 30 basis points to the projected 3-year Fed rate.
The Shift in Rate Expectations and Fed Chair’s Remarks
Consequently, this adjustment has led to a reshaping of market expectations concerning potential rate cuts. In a speech at Jackson Hole, Federal Reserve Chair Jerome Powell reiterated the central bank’s readiness to implement further borrowing cost increases if deemed appropriate. Correspondingly, this stance has influenced market sentiment, contributing to a recent downtrend in US equity markets.
Upcoming Economic Docket and Market Anticipation
Looking ahead to the coming week, the economic calendar appears to be more active. The United States is slated to release data on consumer confidence, the Federal Reserve’s favored inflation indicator, and non-farm payrolls. Simultaneously, multiple indices measuring inflation from significant European countries are scheduled for release. Additionally, the financial arena will gain deeper insights into China’s economic landscape through the forthcoming manufacturing PMI indicators.
Currency Pairs to Focus On
- USD: The Dollar Index (DXY) continued its remarkable performance, concluding the week with a hawkish statement from Fed Chair Powell. This raises the question of whether the DXY maintains its momentum despite the RSI indicating overbought conditions.
- GBP: The GBP/USD heads into the weekend with a downward trajectory, influenced by the dollar’s slight gain following Jerome Powell’s Jackson Hole speech.
- AUD: The Australian Dollar managed to stabilize last week, yet it faces challenges against a strengthening US Dollar, which is benefiting from the Federal Reserve’s unwavering tight policy approach.
- EUR: The EUR/USD is on a course for its sixth consecutive week of decline, primarily due to the European Central Bank’s cautious stance on rates due to the fragility of the economy. EUR/JPY also remains susceptible.
JPY: The Japanese Yen displayed resilience in the past week, countering the persistent weakness observed since the year’s beginning. Nevertheless, both USD/JPY and GBP/JPY face a significant journey to effectively reverse their downward trends.
The news presented on Prime Codex is solely those of the analysts quoted. They do not represent the opinions of Prime Codex on whether to buy, sell, or hold specific pairs. Traders are advised to conduct their independent research before making an investment decision.