The market is currently focused on the potential policy decisions of the Federal Reserve, according to Rabobank’s Senior FX Strategist Jane Foley. In July, market expectations of a possible rate cut from the Fed in September began to solidify. As a result, since the beginning of the month, the USD has been underperforming all other G10 currencies. While some G10 currencies have been supported against the USD due to country-specific factors, others have experienced positive changes in their fundamentals over the summer. For example, the BoJ hiked rates in late July and has maintained a hawkish bias, the change of government in the UK has boosted investor sentiment, and the RBA in Australia has signalled a hawkish bias. However, not all G10 currencies have experienced positive changes in their fundamentals, with the BoC, Riksbank, and RBNZ all cutting rates in recent months.
The ECB recently announced the second rate cut of the cycle and it is widely expected that there will be another cut before the end of the year. The latest ECB staff projections also show a downward revision to Eurozone growth. Despite expectations of Fed easing putting pressure on the USD, less than favorable Eurozone fundamentals are likely to limit the upside potential for EUR/USD in the future. Forecasters predict a risk of EUR/USD dipping back to 1.10. This shows that the market is keeping a close eye on both the Fed’s policy decisions and Eurozone fundamentals.
It is important to pay attention to the potential impact of the Federal Reserve’s policy decisions on the USD and how it will affect other currencies. The market has already seen the USD underperform compared to other G10 currencies since the beginning of the month due to expectations of a rate cut. While some currencies have been supported by country-specific factors, others have experienced changes in their fundamentals. These changes can be seen in central banks’ decisions to hike or cut rates, as well as the overall sentiment towards these currencies. It is important for investors to stay informed about these developments in order to make informed decisions about their investments.
The recent rate cuts by the BoC, Riksbank, RBNZ, and ECB show that central banks are taking steps to stimulate their economies and boost growth. In the case of the ECB, there have been downward revisions to Eurozone growth, which could have an impact on the EUR/USD exchange rate. While expectations of Fed easing may weaken the USD, less favorable economic conditions in the Eurozone could prevent the EUR/USD from appreciating. This suggests that there may be a risk of the EUR/USD dipping back to 1.10 in the future. Investors should consider these factors when making decisions about trading currency pairs.
Overall, the market is closely monitoring the potential policy decisions of the Federal Reserve and their impact on the USD and other G10 currencies. While some countries have been supported by positive fundamentals, others have faced challenges such as rate cuts and downward revisions to growth projections. It is important for investors to stay informed about these developments in order to make sound investment decisions. By understanding the factors influencing currency pairs like EUR/USD, investors can better navigate the volatile foreign exchange market and potentially capitalize on opportunities for profit. With continued uncertainty surrounding global economic conditions, staying informed and adapting to changing market dynamics will be key to successful currency trading.
