The market kicked off the week with major currency pairs trading in tight ranges as trading volumes remained thin heading into the end of 2024. The US economic calendar featured Pending Home Sales for November and the Chicago Purchasing Managers Index for December on Monday. The US Dollar Index ended the previous week slightly higher, holding steady around 108.00 to start the new week. US stock index futures were in negative territory following large losses on Wall Street’s main indexes on Friday.
The US Dollar showed strength against major currencies over the last 7 days, with the strongest performance seen against the Swiss Franc. The percentage changes of the USD against listed major currencies over the past week are displayed in a table, showing increases and decreases against the Euro, British Pound, Japanese Yen, Canadian Dollar, Australian Dollar, New Zealand Dollar, and Swiss Franc. The heat map illustrates these changes visually, with the base currency (USD) and quote currency selected to view the percentage change between each pair.
In China, People’s Bank of China (PBOC) Governor Pan Gongsheng noted that the average deposit reserve ratio for Chinese banks is around 6.6%, which provides room for monetary policy adjustments compared to central banks in other major economies. The Australian Dollar saw a slight uptick in the European morning on Monday, trading just below 0.6250. EUR/USD remained steady above 1.0400 in the early European session, while GBP/USD fluctuated below 1.2600 after modest gains on Friday. Gold ended the previous week relatively unchanged despite a small increase on Thursday, hovering above $2,600 in early Monday trading. USD/JPY maintained its bullish momentum with weekly gains for the fourth consecutive week, trading around 108.00.
Understanding risk sentiment in the financial markets involves recognizing the terms “risk-on” and “risk-off” to determine the level of risk investors are willing to take during a specific period. In a “risk-on” market, investors are optimistic about the future and more willing to invest in riskier assets. Conversely, in a “risk-off” market, investors take a more cautious approach, favoring safer assets over riskier ones. During a “risk-on” period, stock markets typically rise, most commodities experience growth, and currencies of commodity-exporting nations strengthen. On the other hand, during a “risk-off” period, bonds, Gold, and safe-haven currencies such as the US Dollar, Japanese Yen, and Swiss Franc tend to perform well.
Currencies like the Australian Dollar, Canadian Dollar, New Zealand Dollar, Ruble, and Rand tend to rise during “risk-on” market conditions due to their heavy reliance on commodity exports. These currencies benefit from increased demand for commodities during periods of economic growth. In contrast, during “risk-off” periods, major currencies like the US Dollar, Japanese Yen, and Swiss Franc tend to appreciate. The US Dollar is considered a safe-haven asset due to its status as the world’s reserve currency, while the Japanese Yen and Swiss Franc are favored for their perceived capital protection attributes. Understanding these dynamics can help investors navigate market conditions and make informed decisions based on risk sentiment.
