What are the new trends in the foreign exchange market recently?
The foreign exchange market this week experienced relatively moderate fluctuations, with the US dollar largely maintaining stability, while other major currencies such as the British pound, Japanese yen, and euro exhibited different trends due to the impact of domestic economic data and events. As central banks adjust their monetary policies and economic data are released, market sentiment gradually shifts from expectations of aggressive rate hikes by the Federal Reserve to a reassessment of the economic prospects of various countries. Below is an analysis of the trends of the main currencies this week and a review of related events.
US Dollar: Inflation Data Dominates Market Sentiment
Weekly Trend Review
The US dollar remained broadly stable against major currencies this week, with the US Dollar Index closing at 102.91. On Thursday of this week, it briefly broke through 103, reaching a two-month high. This trend was mainly due to adjustments in market expectations for rate cuts by the Federal Reserve. The Producer Price Index (PPI) for September released by the US Department of Labor showed relatively moderate inflationary pressures, while the Consumer Price Index (CPI) for September was slightly higher than expected, prompting a reassessment of the Federal Reserve's monetary policy path.
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Economic Data and Events
Inflation data became the focus of market attention this week. The September PPI was flat, indicating a reduction in price pressures in the US production sector. However, the CPI increased by 0.3% year-on-year, slightly higher than market expectations, showing that inflation remains sticky. In addition, a surge in weekly initial jobless claims raised concerns about a weakening labor market, especially with the dual impact of hurricanes Helen and Milton, causing significant short-term disruptions to economic activity in the southern regions.
Analysts' Views
Analyst Amarjit Sahota pointed out: "The slight increase in inflation does indeed prevent the market from overly aggressively expecting the possibility of a substantial rate cut before the end of the year." Currently, the market generally expects the Federal Reserve to cut rates by 25 basis points at the next meeting, with the probability of a rate cut as high as 91%.
Japanese Yen: Persistent Depreciation Pressure Intensifies
Weekly Trend ReviewThe Japanese yen weakened against the US dollar once again this week, closing at 149.12, approaching the psychological threshold of 150. The persistent depreciation pressure on the yen mainly stems from the divergence in monetary policies between Japan and the United States. The Federal Reserve is still controlling inflation, while the Bank of Japan continues to maintain an ultra-loose monetary policy, with the interest rate differential between Japan and the US further widening, leading to poor performance of the yen in the market.
Economic Data and Events
There were no significant Japanese economic data releases this week, but the market is watching the policy stance of the Bank of Japan. As the yen continues to depreciate, the market gradually increases expectations for the Bank of Japan to intervene in the foreign exchange market, but so far there has been no clear action.
Analysts' Views
Some market analysts believe that further depreciation of the yen may trigger foreign exchange intervention by the Bank of Japan. Analysts point out that if the yen breaks below 150, it is expected that the Japanese government or the central bank may take action to slow down exchange rate fluctuations and curb capital outflows.
Pound: Economic Recovery Supports Short-Term Gains
Weekly Review
The pound performed relatively strongly this week, rising by 0.08% against the US dollar, closing at $1.3072. This rebound was mainly driven by the warming of the UK's economic data in August, with signs of recovery after two consecutive months of no growth, enhancing market confidence in the pound.
Economic Data and Events
Data released by the UK Office for National Statistics showed that the UK economy achieved slight growth in August. Despite the UK economy still facing the pressure of high inflation and high interest rates, this sign of recovery has injected some optimism into the market. In addition, UK Chancellor of the Exchequer Reeves will emphasize growth priority in the first budget of the new government, and the market is looking forward to further policy support.Analysts' Perspectives
Market analysts have indicated that while the British pound is supported by economic data in the short term, medium to long-term risks still persist. Inflationary pressures and the Bank of England's tightening monetary policy will pose significant challenges to the economy, and a global economic slowdown could also drag down the pound's long-term trend.
Euro: French Budget and ECB Policy Dominate the Trend
Weekly Review
The euro against the US dollar had a lackluster performance this week, essentially stabilizing at $1.1093. Although there were no significant economic data releases in the eurozone this week, the French budget and the future policy path of the European Central Bank (ECB) became the focus of market discussions.
Economic Data and Events
The French government unveiled its 2025 budget this week, planning to address the expanding fiscal deficit through spending cuts and tax increases. Although this budget may be delayed until December for approval, its potential impact on the overall health of the eurozone economy has attracted market attention.
Analysts' Views
Analysts believe that inflationary pressures in the eurozone have eased somewhat, but the outlook for economic growth remains unclear. France's fiscal austerity measures, while helpful for controlling deficits in the long term, may suppress short-term economic activity. In addition, the current policy stance of the ECB is also under close scrutiny, with investors watching to see if the ECB will take further action to address weak economic data.
Canadian Dollar: Oil Price Fluctuations and Canadian Economic Data Significantly ImpactfulWeekly Market Review
The Canadian dollar weakened slightly against the US dollar this week, primarily influenced by fluctuations in oil prices. The oil prices experienced a correction this week, putting pressure on the energy-related Canadian dollar. The movement of the US dollar against the Canadian dollar reflected the direct impact of crude oil price volatility on the exchange rate of the Canadian dollar.
Economic Data and Events
There were no significant economic data releases from Canada this week, and the market's focus remained on the global trend of oil prices. With the increasing expectation of a global economic slowdown, the outlook for crude oil demand is not optimistic, adding extra pressure to the Canadian dollar.
Analysts' Views
Energy market experts pointed out that the correction in oil prices has exacerbated the weak trend of the Canadian dollar. Analysts generally believe that the Canadian economy will continue to rely on the performance of the energy market in the short term, and the weakening of global economic demand may further affect the performance of the Canadian dollar.
The overall performance of the foreign exchange market this week was stable. The US dollar maintained its strength under the dominance of inflation data and expectations for the Federal Reserve's monetary policy. The Japanese yen continued to depreciate due to policy divergence, the British pound rebounded in the short term due to the recovery of the UK economy, and the euro fluctuated within a limited range under the influence of the French budget plan and the European Central Bank's policy. The Canadian dollar continued to be influenced by oil price fluctuations. As economic data from various countries are released in the coming weeks, market expectations for major global currencies may undergo further adjustments. Traders should closely monitor the monetary policy trends of central banks to cope with fluctuations in the exchange rate market.
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