Forex News
OCBC’s FX and commodities strategists highlight renewed Middle East supply risks that pushed oil prices higher despite strategic reserve releases. Brent briefly touched USD110/bbl as Iranian attacks on shipping and escalating Saudi-Houthi tensions raised concerns over key oil export routes. Disruptions to Saudi Arabia’s alternative export infrastructure could further constrain crude supplies, outweighing efforts by the IEA and US to ease market pressures.
Middle East tensions drive crude higher
"News of potential strategic reserve releases kept oil prices in check for much of last week. But crude surged on Friday as renewed attacks on shipping threatened the recovery in Middle East oil flows. Brent briefly touched USD110/bbl before paring gains."
"Iranian attacks on commercial shipping have intensified and broadened beyond tankers, raising concerns over the sustainability of the recovery in flows through and around the Strait of Hormuz. Meanwhile, escalating Saudi-Houthi tensions have put Saudi Arabia's alternative export infrastructure back in focus. A Saudi-led coalition intercepted a ballistic missile headed towards Yanbu on Friday."
"The key risk is that disruption spreads from Hormuz to the infrastructure designed to bypass it. Saudi Arabia's East-West Pipeline can carry around 7mn bpd to the Red Sea and was running at 5.8mn bpd in early October. A serious disruption to the pipeline or Yanbu would therefore constrain an important alternative route for Saudi crude exports."
"The oil rally also came despite government efforts to put more supply into the market. The IEA agreed to accelerate its remaining emergency stock releases, including more than 20mn barrels of diesel, while the US solicited an exchange of up to 17mn barrels of SPR crude. Both measures form part of the broader emergency response agreed earlier this year, rather than representing entirely new supply commitments."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- EUR/CAD opened at a bearish gap as violent cost-of-living protests swept across France.
- Oil prices fell after US President Trump paused Russian fuel export sanctions, pressuring CAD.
- Markets expect the Bank of Canada to hold interest rates steady at its October meeting.
EUR/CAD remains in negative territory after experiencing volatility, trading around 1.5800 during European hours on Monday. The currency cross opened at a bearish gap as the Euro (EUR) faces headwinds from widespread unrest in France.
Speaking in a televised national address on Sunday following one of the country's most severe days of civil unrest in recent years, French President Emmanuel Macron condemned the "shocking" violence stemming from protests over the rising cost of living. France’s demonstrations were the largest among a broader wave of protests that also impacted Belgium, Italy, and Portugal.
Meanwhile, the EUR/CAD cross faces volatility as the commodity-linked Canadian Dollar (CAD) faces potential pressure from declining crude oil prices. Oil slipped following US President Donald Trump's decision on Friday to sign an executive order pausing key sanctions and tariffs on Russia under the Graham Act, a move expected to boost Russian fuel exports. The temporary waiver pauses restrictions Trump had signed into law just last month amid Congressional pressure over Russia's war in Ukraine, with Secretary of State Marco Rubio noting that the administration will take up to 60 days to evaluate the economic impact of the decision.
Despite the headwinds for crude, traders expect the Bank of Canada (BoC) to keep interest rates on hold at its upcoming October meeting, maintaining the pause it has observed throughout the year, before potentially considering a rate hike in December. With underlying inflation remaining close to the BoC’s 2% target and growing slack in the domestic labor market, market participants see little justification for an immediate interest rate increase.
Canada inflation seen steady as RBC looks for CPI to hold at 3%
Economists at Royal Bank of Canada expect Canadian inflation to remain stuck at the current plateau, projecting that the headline Consumer Price Index will “hold at 3% year-over-year in September for a third consecutive month.” This anticipated steady reading underscores their view that, while price pressures persist, overall inflation is no longer accelerating on a headline basis.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
MUFG’s Lee Hardman notes the Dollar index has retreated from a year-to-date high near 102.95 and slipped back below its 200-week moving average around 102.10. He highlights that stronger US inflation failed to trigger further Fed repricing, while massive foreign inflows into US equities and credit tied to AI optimism leave the Dollar more vulnerable if sentiment reverses.
US Dollar tied to AI sentiment
"The major foreign exchange rates have remained stable overnight with the US dollar continuing to trade at modestly weaker levels following last week’s correction lower. The dollar index closed lower last week brining an end to four consecutive week of gains that had lifted it to a fresh year-to-date high of 102.95. It has since fallen back below resistance from the 200-week moving average which comes in at around 102.10."
"The US dollar’s failure to extend its gains last week following the release of stronger US inflation data was disappointing and has likely encouraged some investors to trim long positions accumulated over the past month. Despite the stronger US inflation data, which further highlights the limited progress towards the Fed’s inflation objective, market participants have been reluctant to price in a more hawkish policy path. Market pricing for a back-to-back Fed rate hike later this month has fallen to only around 3bps after Fed Chair Kevin Warsh at the end of last week refrained from signalling a clear need for another increase so soon after last month’s initial hike."
"US financial markets have been a major beneficiary of strong foreign investor demand driven by AI-related optimism. Foreign investors purchased USD942 billion of US equities in the twelve months to July, while purchases of US corporate bonds increased sharply to USD452 billion over the same period. These sizeable inflows highlight how the USD has become increasingly tied to investors’ search for higher returns in US financial markets, rather than benefiting from its traditional safe-haven status."
"At the same time, the US dollar’s pullback this week has coincided with a wobble in AI-related trades. After reaching a fresh record high earlier this month, Bloomberg’s AI equity index has since fallen by around 9%. The correction has been even more pronounced in semiconductor and neocloud equity indices."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- AUD/JPY builds on its recovery from a multi-month low for the second straight day.
- Hawkish comments from RBA’s Kent and China’s upbeat GDP print boost the AUD.
- The BoJ uncertainty weighs on the JPY, though intervention risks could limit losses.
The AUD/JPY cross attracts follow-through buying for the second straight day, recovering further from an eight-month low, around the 108.65 region, touched last Thursday. Spot prices stick to intraday gains through the first half of the European session and currently trade around the 110.35 zone, up over 0.60% for the day.
The Australian Dollar (AUD) gains some positive traction in reaction to Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent's hawkish remarks, saying that there are reasonable indications that neutral interest rates are increasing both domestically and globally. Adding to this, data released from China showed that the economy grew by 4.5% year-over-year in the third quarter, better than consensus estimates and accelerating from 4.3% in the previous quarter. This further benefits the China-proxy Aussie, which, along with a mildly weaker tone around the Japanese Yen (JPY), acts as a tailwind for the AUD/JPY cross.
Media reports suggested last week that Bank of Japan (BoJ) officials see little need for a rare back-to-back interest rate hike in the absence of signs that upside inflation risks will increase abruptly, keeping JPY bulls on the back foot. Meanwhile, BoJ Governor Kazuo Ueda said earlier today that underlying inflation is approaching the central bank’s 2% target, signalling scope for further interest rate hikes. Moreover, traders remain on high alert amid speculation that Japanese authorities will step in to prop up the domestic currency, which helps limit the downside for the JPY and might cap the upside for the AUD/JPY cross.
Hence, it will be prudent to wait for strong follow-through buying before confirming that spot prices have bottomed out in the near-term and positioning for any meaningful appreciating move. Traders might also refrain from placing aggressive directional bets and opt to wait for the highly anticipated BoJ monetary policy meeting on October 29-30.
Australian Dollar Price Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.22% | -0.02% | 0.08% | -0.33% | -0.46% | -0.18% | 0.04% | |
| EUR | -0.22% | -0.24% | -0.11% | -0.54% | -0.68% | -0.40% | -0.18% | |
| GBP | 0.02% | 0.24% | 0.11% | -0.33% | -0.44% | -0.16% | 0.05% | |
| JPY | -0.08% | 0.11% | -0.11% | -0.40% | -0.63% | -0.26% | -0.02% | |
| CAD | 0.33% | 0.54% | 0.33% | 0.40% | -0.11% | 0.15% | 0.38% | |
| AUD | 0.46% | 0.68% | 0.44% | 0.63% | 0.11% | 0.28% | 0.51% | |
| NZD | 0.18% | 0.40% | 0.16% | 0.26% | -0.15% | -0.28% | 0.23% | |
| CHF | -0.04% | 0.18% | -0.05% | 0.02% | -0.38% | -0.51% | -0.23% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
- US indices futures gained as traders priced in an 85.1% chance the Fed holds interest rates steady.
- Tech stocks face pressure from AI debt concerns, highlighted by CoreWeave’s 25% weekly drop.
- Markets await major corporate earnings this week, including results from Tesla, Meta, and Netflix.
Dow Jones futures gain by 0.16% to trade near 52,300 during European hours on Monday. S&P 500 futures surge 0.59% to trade around 7,750, while Nasdaq 100 futures rise by 1.15% to near 29,730.
US stock futures climbed as expectations for an October interest rate hike by the Federal Reserve (Fed) continued to decline. Speaking at an International Monetary Fund event on Friday, Fed Chairman Kevin Warsh stated that he does not prejudge monetary policy decisions, leaving markets without a clear direction ahead of the central bank's upcoming October meeting.
According to data from the CME FedWatch Tool, traders are now pricing in an 85.1% chance that the central bank will keep interest rates unchanged later this month, a substantial rise from the 42.4% probability recorded just a month ago.
Meanwhile, technology stocks came under pressure last week amid growing concerns over AI financing. CoreWeave, a neocloud company that relies heavily on debt to build data centers leased to technology firms, emerged as a focal point of these concerns, with its shares plunging 25% over the week. Corporate bond investors have also begun avoiding CoreWeave’s debt, pushing the company’s credit default swaps to distressed levels.
Against this backdrop, traders prepared for a busy week of corporate earnings while reassessing the outlook for AI-related investments. Market participants are now awaiting key quarterly results from major companies, including Tesla, Meta, Netflix, American Express, and GE Aerospace.
Dollar seen vulnerable if AI optimism fades
Analysts at MUFG/BTMU caution that the recent pattern of heavy foreign inflows into US assets linked to artificial intelligence carries a downside risk for the greenback. They argue that while AI-related enthusiasm has been a key support, “this dynamic also leaves the USD more exposed to a reversal if sentiment towards AI deteriorates.”
AI stocks FAQs
First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.
There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.
Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.
Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.
ING’s Francesco Pesole says EUR/USD is modestly undervalued versus short-term fair value around 1.137–1.139, but ongoing French fiscal concerns and protests may limit gains. He sees risks as balanced, with downside from France and upside from further AI-related pressure on Fed expectations, and keeps a one-month EUR/USD target at 1.130.
French protests and AI keep risks balanced
"EUR/USD briefly dropped back below 1.120 overnight before inching higher again this morning. The move in short-term rate differentials has pushed our short-term fair value estimate for EUR/USD higher to around 1.137-1.139. The current undervaluation is therefore around 1.3-1.5%, broadly consistent with French fiscal risk remaining very much present, as reflected in the 10yr OAT-Bund spread hovering around 135-140bp."
"Markets have appeared tentatively more relaxed about the budget situation. Still, continued widespread protests in France over the weekend should weigh on domestic stocks and could spill over into the bond market. We doubt that is enough to drive further sustained widening per se, but it may limit EUR/USD's ability to return to Friday's levels."
"On the macro side, the highlight of the week is Friday's PMI release. Expectations are for a modest softening in the eurozone composite figure, while remaining well inside expansionary territory. Tomorrow, Germany's ZEW index will be in focus."
"The balance of risks for EUR/USD is fairly even at this stage. Downside risk continues to stem from France, although it has abated somewhat as of late, while the upside comes from further AI concerns hitting Fed rate expectations. Our month-ahead target remains 1.130."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- The US Dollar Index may find initial resistance at the nine-day EMA of 102.03.
- The 14-day Relative Strength Index at 58.17 indicates positive bullish momentum.
- The immediate support lies at the ascending channel bottom around 101.70.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is inching lower after opening at a bullish gap and remaining in positive territory near 102.00 during the Asian hours on Monday.
The near-term bias stays constructive as the US Dollar Index holds above the 50-day Exponential Moving Average (EMA) while probing the nine-day EMA as immediate resistance. The 14-day Relative Strength Index (RSI) at 58.17 leans bullish without being overbought, suggesting ongoing positive momentum, while the FXS Fed Sentiment Index stabilizing around 127.51 hints that Fed-related expectations are no longer aggressively driving fresh upside.
Additionally, the technical analysis of the daily chart indicates that the dollar index is remaining within the ascending channel pattern, signaling ongoing bullish momentum.
The US Dollar Index could test the initial barrier at the nine-day EMA of 102.03. A break above the short-term price average would strengthen the bullish bias and support the dollar index to test the 18-month high of 102.94, reached on October 14, followed by the upper boundary of the ascending wedge at 103.80.
On the downside, the US Dollar Index may find immediate support at the lower boundary of the ascending channel around 101.70, followed by the 50-day EMA of 100.91. Further declines would expose the five-month low of 98.56, which was recorded on August 20.
Dollar bulls turn cautious as focus shifts to sustainability of USD gains
Economists at DBS Group Research suggest that momentum behind the greenback may be nearing an inflection point. According to DBS, “the coming week could see a shift from extending the USD’s recent rally to reassessing its sustainability,” as investors weigh how durable the latest bout of Dollar strength is likely to be.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
- Gold attracts some buyers on Monday amid receding October Fed hike bets and sliding bond yields.
- Traders still see around a 90% chance of a December Fed rate hike, which caps the precious metal.
- Geopolitical tensions lend support to the safe-haven USD, which further keeps a lid on the commodity.
Gold (XAU/USD) struggles to capitalize on modest intraday gains and remains below the $4,200 mark through the first half of Monday’s European session, well within a three-week-old trading range. US Federal Reserve (Fed) Chair Kevin Warsh’s unwillingness to offer fresh cues on further policy moves forced investors to price out the possibility of policy tightening later this month. Moreover, the recent sharp pullback in US government bond yields from multi-year highs, which dragged the US Dollar (USD) to a two-week low on Friday, acts as a tailwind for bullion.
Fed blackout looms as Warsh’s silence cuts October hike odds
Deutsche Bank’s strategists note that with the Fed about to enter its blackout period ahead of the October 27–28 meeting, Kevin Warsh declined to push back against market rate expectations, stressing that he doesn’t “prejudge meetings” even after this week’s hotter inflation data. According to the bank, markets interpreted the absence of a more hawkish tone as a positive surprise, with “October hike pricing dropping to around 15% from roughly 30% as he spoke,” while “S&P and Nasdaq futures are both +0.15% higher having been negative for most of the session before he spoke,” and “Stoxx futures are +0.68% higher.”
Meanwhile, last week's hotter-than-expected US inflation reports lifted market bets for an imminent Fed rate hike. According to CME Group's FedWatch Tool, traders are pricing in over a 90% chance that the US central bank will raise borrowing costs in December. Furthermore, energy-driven inflation fears underpin prospects for further policy tightening by the Fed. In fact, crude oil prices surged to a nearly one-month high on Friday as escalating hostilities in the Middle East and Eastern Europe kept supply risks elevated.
Three tankers were also damaged in the Strait of Hormuz over the weekend as Iran’s IRGC navy maintained that the waterway remained closed and vessels could pass only with its authorization. In Europe, Ukrainian attacks sparked fires at an oil export terminal and a storage depot in St. Petersburg on Sunday, as Kyiv launched more than 1,000 drones at Russia in one of the war’s largest aerial assaults. Moreover, clashes between Saudi Arabia and the Iran-backed Houthi rebel group in Yemen have shown little sign of abating.
Adding to this, a secretary of Iran’s Supreme National Security Council, Mohsen Rezaei, warned that Tehran has prepared a new retaliation plan for any renewed US-Israeli attack. This keeps the geopolitical risk premium firmly in play, acting as a tailwind for crude oil prices and allowing the safe-haven buck to recover further from a two-week low. This might keep a lid on any further appreciating move for the Gold, making it prudent to wait for strong follow-through buying before positioning for further gains.
XAU/USD 4-hour chart
Technical Analysis
The range-bound price action could be categorized as a bearish consolidation phase against the backdrop of a fall from the $4,700 neighborhood, touched in August. Moreover, the XAU/USD pair remains decisively below the 200-period Simple Moving Average (SMA) on the 4-hour chart, suggesting that recent gains are still unfolding within a broader corrective phase rather than a confirmed uptrend.
Meanwhile, the Relative Strength Index (14) at 55.1 leans modestly to the bullish side, and the Moving Average Convergence Divergence (MACD) stays above zero with a positive, though slightly softening, profile. Nevertheless, acceptance above the $4,200 mark and a move beyond the trading range barrier, around the $4,215-$4,220 region, is needed to ease the prevailing downside pressure and open the way for a more constructive medium-term outlook.
On the downside, the $4,150-$4,145 area could offer immediate support ahead of the $4,100 round figure and last week's swing low, around the $4,075-$4,065 region. A convincing break below the latter would make the Gold vulnerable to challenge the year-to-date (YTD) low, near the $3,957 zone, touched in July.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Commerzbank’s Tatha Ghose highlights that while CE3 currencies have stabilized with the Euro, the Polish Zloty continues to underperform peers. He links this to institutional frictions between Poland’s government, president and central bank over NBP board appointments. Ghose expects NBP’s structure to remain uncertain but does not foresee major monetary policy shifts, viewing the news as extending, not transforming, PLN’s negative backdrop.
Institutional frictions and currency lag
"Over the past week, however, the euro stabilised somewhat, allowing regional currencies to regain some lost ground from the recent bottom. The relative performance ranking, however, remained the same since before the change of trend: the Polish zloty continues to underperform the peer group, the Czech koruna performs in the middle and the Hungarian forint remains the outperformer."
"Poland-specific institutional developments are not helping the zloty’s performance. The government and central bank continue to be in adversarial positions. President Karol Nawrocki will re-submit four nominations to Poland’s National Bank (NBP) Management Board for PM Donald Tusk’s countersignature, after Tusk blocked the same names in May."
"The issue could become more pressing when deputy governor Adam Lipinski’s term expires on 4 November. This would leave the Management Board with only 5 members, fewer than the statutory 6 (although legal experts generally do not expect NBP’s decisions to become invalid with 5 members)."
"NBP’s structure may therefore become uncertain in the foreseeable future, but we do not suspect far-reaching monetary policy implications: NBP was willingly cutting rates earlier this year when this was possible – that should have diffused earlier tension with the government. As a result, while such developments extend the negative environment around the zloty, they are not significantly new negatives."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Forex Market News
Our dedicated focus on forex news and insights empowers you to capitalise on investment opportunities in the dynamic FX market. The forex landscape is ever-evolving, characterised by continuous exchange rate fluctuations shaped by vast influential factors. From economic data releases to geopolitical developments, these events can sway market sentiment and drive substantial movements in currency valuations.
At Rakuten Securities Hong Kong, we prioritise delivering timely and accurate forex news updates sourced from reputable platforms like FXStreet. This ensures you stay informed about crucial market developments, enabling informed decision-making and proactive strategy adjustments. Whether you’re monitoring forex forecasts, analysing trading perspectives, or seeking to capitalise on emerging trends, our comprehensive approach equips you with the insights needed to navigate the FX market effectively.
Stay ahead with our comprehensive forex news coverage, designed to keep you informed and prepared to seize profitable opportunities in the dynamic world of forex trading.
