Recent developments in the foreign exchange market have spotlighted the euro and the yen, as both currencies rallied against the dollar amid shifting monetary policy expectations and economic data releases. The dollar’s strength has stalled, influenced by subdued U.S. economic indicators and reduced corporate demand for the greenback during the U.S. Thanksgiving holiday.
Euro’s Upswing
The euro marked its sharp rise in four months, climbing 0.7% to $1.0560. The surge followed hawkish commentary from European Central Bank (ECB) board member Isabel Schnabel, who advocated for gradual rate cuts aimed at achieving neutral policy levels rather than an accommodative stance. This has tempered investor expectations of aggressive rate cuts in the eurozone. Markets are closely watching Germany’s upcoming inflation data, which could determine whether the euro challenges its resistance level around $1.06.
Yen Gains Momentum
The yen has enjoyed its strongest week in three months, with traders increasing bets on a potential interest rate hike by the Bank of Japan in December. Market-implied probabilities for a 25-basis-point rate increase have risen to 60%, fueled by strong Japanese inflation data. The yen recently moved through its 200-day moving average, trading at 151.50 per dollar, and analysts anticipate further gains if economic data continue to support a policy shift.
Dollar Declines
The U.S. dollar index fell nearly 0.8% overnight to 106.13, pressured by declining Treasury yields and easing inflation concerns. Data showing U.S. personal consumption expenditures rose only 0.2% month-over-month met expectations but reinforced the narrative of a cooling economy. The dollar’s weakness was further exacerbated by diminished corporate demand following month-end currency needs.
Other Currencies and Commodities
• Sterling: The British pound rose to $1.2675 on the back of a weaker dollar, though it remains sensitive to movements in the euro.
• New Zealand Dollar: The kiwi climbed over 1% after a smaller-than-expected rate cut of 50 basis points by the Reserve Bank of New Zealand. It last traded at $0.5892.
• Australian Dollar: The Aussie gained modestly, rising 0.4% overnight.
