Daily Forex Market Review: US Dollar Hits Year’s Low!

The US dollar hit its lowest point of the year on Tuesday as market participants anticipated future interest rate cuts by the Federal Reserve.

The dollar fell to levels not seen since early January, reflecting expectations that the US central bank will begin cutting rates next month.

This decline assumes a “soft landing” and rate cuts, which are bearish for the dollar.

Currency traders are now focused on Fed Chairman Jay Powell’s upcoming speech at the Jackson Hole Symposium on Friday, where he is expected to provide insight into the future path of US interest rates.

Markets are now pricing in three to four-quarter point interest rate cuts by the Fed before the end of the year, following strong retail sales figures that eased fears of an impending recession.

Traders had previously anticipated up to five cuts this year after a weak jobs report.

Asset managers have moved from a very positive outlook on 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 trajectory.

It’s not just about the Fed

The dollar’s decline was also fueled by the unwinding of popular “carry trades,” in which investors borrow yen at low interest rates and use it to buy higher-yielding currencies such as U.S. dollars.

They then invest in bonds, stocks or other financial instruments denominated in these higher-yielding currencies.

In simple terms, as long as the yen weakens against the dollar, shipping remains profitable. However, when the yen strengthens, the carry trade may relax, leading to global market volatility as investors are forced to sell positions funded by this trade.

For example, on July 31, the Bank of Japan unexpectedly raised interest rates and hinted at further increases. This caused the yen to strengthen significantly against the dollar, going from about 154 to 141 in six trading days, or over 1,200 pips!

On August 6th, Bank of Japan Deputy Governor Uchida clarified that there were no more rate hikes planned anytime soon, leading to a weakening of the Yen and causing USD/JPY to bounce back over 600 pips!

The yen remains a key factor

The point is that the Japanese yen (JPY) remains a key driver of forex market volatility.

So while everyone and their mothers are focused on Fed Chair Powell’s upcoming glamping appearance in Jackson Hole, there might be another person to watch out for…

Hours before Powell’s speech, Bank of Japan Governor Ueda will address the Japanese parliament.

If Ueda takes more aggressive The higher-than-anticipated rate hike stance could see the yen trade off (again), triggering (again) massive global market volatility, including all major currencies.

Be careful out there!

Forex market movements

Let’s review forex price action today.

Which currency pairs gained the most today?

NZD/USD was the leader of the pack, winning 0.61% or 37 kernels.

As our FX Market Movers page shows, NZD/CAD and EUR/USD won the silver and bronze medals today.

Looking at the NZD/USD trend following the valuation, it shows a Bullish rating.

The currency pair managed to climb back above ALL of its major moving averages, which are now acting as dynamic support areas.

But the NZD/USD overbought/oversold rating shows “Overbought“.

Which currency pairs lost the most today?

USD/CHF he was the biggest loser, falling 1.02% or 88 kernels.

Looking at the USD/CHF pivot points, the price appears to be trading near several pivot point levels.

The power of currency

What was the overall strength or weakness of individual major currencies today?

Based on the currency strength meter on MarketMilk™, CHF was by far the strongest currency, while USD it was the weakest currency.

If we dig a little deeper and look at how the major currency pairs have moved over the past 24 hours, we can see how NZD/USD has strengthened throughout the trading sessions.

Short term currency trends

When it comes to the strength of short-term trends, NZD shows the greatest power.

The USD shows the greatest bear power.

Currency Heatmap

If we take a look on our currency heat mapwe can see the weakness USD over time intervals.

Currency volatility

Which currency was the most volatile today?

Based on our currency volatility meter, it is JPY.

See today’s rise in volatility for major currencies. Notice how volatile JPY it was in the last 24 hours.

Which currency PAIR was the most volatile today?

given that JPY was the most volatile currency, which pair?

USD/JPY was the most volatile, moving 1.49% or 214 pips.