The dollar took off again on Wednesday, with wagers that the US economic recovery will outpace its peers’ continuing to propel it to a third consecutive day of gains against the Japanese yen, while forex online gamblers kept their eyes peeled for Tokyo stepping in as the strong greenback spells risk.
Forex online trading: Rate cuts turn into trading opportunities
On the other side of the Atlantic, Sweden’s central bank announced a cut in interest rates and two more cuts expected this year.
This continues the theme that the dollar is likely to be the strongest in forex online trading, now that it has emerged from its long slumber.
Greater and faster action is likely to be taken at other central banks before even the United States Federal Reserve.
Forex online trading: Yen interest forex traders
Meanwhile, the yen continues to interest forex online trading participants, with Japanese officials ratcheting up their warnings over the weak currency’s damage to the economy.
Nevertheless, the market recognises the risk that Tokyo would intervene to shore up the yen, and Serebriakov said he does not see big, systemic changes in the US economic picture that would alter the backdrop for forex online trading markets at this point.
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Forex online trading: Trading Yen
Forex online trading data revealed that traders estimated Japanese authorities spent around ¥60 billion last week shoring up the yen that had hit a 34-year low against the greenback.
The dollar soared 0.61% against the yen to 155.63 on Tuesday, having hit its record low of 151.86 last week.
Meanwhile, in the wider context of foreign exchange online trading, investors are watching carefully how much and when the Fed is likely to cut rates.
Better-than-expected US job creation data last month, together with a hawkish stance from the Federal Reserve, have made it almost a done deal that rates will be cut this year.
Forex online trading: Fed to pull the trigger on rate cuts
According to forex online trading, while the European central banks have already begun to lower rates, all eyes are on when the Fed will pull the trigger, given the creeping inflation trends toward the US central bank’s 2% target.
Against this backdrop, the euro slipped marginally on the forex online trading, by 0.02% to $1.075, with sterling also weakening 0.22% to $1.2475.
In the cryptocurrency space, which has become increasingly influential when it comes to forex online trading, bitcoin also slipped, by 0.91% to $62,395, registering its longest run of daily losses this year.
A measure of global equity performance dropped on Wednesday as investors waited to see whether key inflation data could indicate cuts in Federal Reserve interest rates and as the dollar rose on expectations that the US economy would soon get a boost.
European stocks rose as corporate earnings delivered a few good surprises, but Wall Street slumped as growth stocks, including Tesla, tanked and ride-hailing firm Uber warned that second-quarter revenue would be flat from the previous period.
Online trading in the currency markets saw the yen dip for a third straight session, prompting speculation that Japanese authorities might step into the market to prop it up, while crude oil slipped to nearly two-month lows.
The Swedish crown was put under pressure after the central bank cut interest rates, and signalled two more cuts this year. The contrast in forex online trading is getting wider, as global traders debate if inflation can get to the Federal Reserve’s 2% sweet spot and when chair Jerome Powell will pivot to rate cuts.
‘The market is in limbo until next week’s CPI [consumer price index] report,’ says Gennadiy Goldberg, U S rates strategy head at TD Securities. ‘We are trapped until the data arrives.’
Investors are nervous,’ Goldberg said. ‘They don’t want to get ahead of themselves and make bold extrapolations based on small sets of data.’
A sudden reversal in April saw global stocks get clobbered on the back of upbeat US economic news leading traders to rethink bets on Fed rate cuts, which would have triggered similar moves by other major central banks. But stocks bounced back in May on the back of positive data on nonfarm payrolls, which paint an image of a US labour market still cooling off but crucially still outperforming pre-pandemic levels.
The yen receded 0.56% to 155.54 per dollar in forex online trading overnight after the Bank of Japan’s new governor Kazuo Ueda said the central bank stands ready to implement foreign-exchange market intervention to alleviate strong currency fluctuations that pose a risk to prices. Japan intervened last week to shore up the battered yen around 34-year lows but traders are highly sensitive to any move in the pair.
The dollar index, which measures the currency against six peers, climbed 0.08% to 105.50, and the euro slipped 0.02% to $1.075.
US Treasury yields have retreated somewhat on expectations that the Federal Reserve will cut interest rates twice before the end of the year. The 10-year yield rose 1.8 basis points to 4.48%.
Oil prices dropped after benchmark U.S. crude and fuel inventories rose again, pointing to diminishing demand. West Texas Intermediate crude fell 0.52% to $77.97 per barrel, while Brent lost 0.6% to $82.66 per barrel. Spot gold rose 0.04% to $2,314.81 per ounce, while bitcoin fell 0.95% to $62,370.75.
South Africa’s rand fell against the dollar on Wednesday morning, with the downward trajectory likely impacted by a move across global markets to reduce risk.
The rand traded at 18.58 per dollar at 07:26 GMT, lower by 0.38% compared with the previous close, while the dollar climbed 0.14% against a basket of currencies.
‘Sentiment towards risk has dropped a bit, and the Middle East remains volatile,’ added Andre Cilliers, currency strategist at TreasuryONE. Israeli forces were seizing control on Tuesday of the main Gaza-Egypt border crossing at Rafah, from which more than a million Palestinian refugees have fled Israel’s seven month-long offensive.
The rand was especially sensitive to global drivers such as the direction of the dollar as well as local economic data.
An earlier release from the central bank showed that in April, South Africa’s net foreign reserves grew to $57.851 billion from $57.513 billion in the previous month.
Similarly, the Top-40 (.JTOPI) and the more comprehensive all-share (.JALSH) indices were around 0.3% weaker in the opening minutes of trading on the stock market.
The benchmark 2030 government bond also saw some minimal slippage, with its yield increasing by 1 basis point to 10.485%.
Forex online trading participants are keeping an eye on market developments and risk sentiment while taking into account the emerging global macroeconomic situation.
As expected, Sweden’s central bank cut its key interest rate by a quarter-point on Wednesday to 3.75% from 4%, and said it expected to reduce it by a further half-point in the second half of the year should inflationary pressures remain modest.
Central banks around the world are considering cutting policy at a time when they have been raising rates for two years in a row, and it is hard to figure out the right time.
Geopolitical tensions and the imperative to move rates toward target levels complicate the task.
Earlier, Sweden’s central bank estimated it was likely to make its first rate cut in May or June, recent data confirming that inflation has stabilised around 2% after hitting more than 10% in late 2022.
In forex online trading, the majority of analysts polled by Reuters had expected a quarter-point cut, which would have been the Riksbank’s first in eight years.
More importantly, the next question is how fast the rates could fall.
If the Riksbank has indeed entered a new easing cycle, then Andrew Kenningham, Chief European Economist at Capital Economics, sees a June pause, followed by three more cuts by the end of the year.
Recent softer inflation data in April and May could bring a June cut back into the picture.
The Riksbank continues to be reluctant to loosen policy further, in case that weakens the Swedish crown and adds to inflationary pressures, especially if Sweden falls out of step with the European Central Bank and the US Federal Reserve. ‘We’re at a point where monetary policy should be very cautious,’ Thedeen said.
The forex online trading experts noticed that the crown sagged after the announcement, but that the downward trend could halt depending on other central banks’ reactions.
The ECB will likely cut rates in June and it remains to be seen if the US Federal Reserve will adopt a more generous policy at an earlier date.
Central bankers in Australia recently sounded the alarm, while Norway’s rate-setters did the same last week. And today’s decision by the Bank of England is expected to avoid a rate cut until June at the earliest, or even later into the summer.
Now, with rates up by eight percentage points in less than two years, Sweden’s economy is grinding to a halt, and many households are having difficulty making mortgage payments at levels not seen in more than a decade and a half.
Forex trading: USD up, Pound holds, Yen rises!
After contracting 0.2% in 2023 and a sluggish first quarter of this year, the economy appears to be on the brink of recession. The last time it cut rates was in early 2016, dropping it to -0.50% – the lowest rate ever.
Sterling weakened on Wednesday as traders waited for more guidance on when the Bank of England is likely to cut borrowing costs, after the central bank held its main interest rate at 5%.
Sterling fell 0.13% on the dollar to $1.2493 and slipped versus the euro, which rose 0.1% to 86.06 pence.
But shrinking nearly 2% against the dollar this year, the British currency is the second-best-performing major currency, after the offshore Chinese yuan, which has slipped just 1.5%.
And six weeks ago, after that last BOE policy meeting, two of the 10 major rating agencies said they expected three 25-basis-point cuts before the BOE finished.
But lately, the data shows the British economy is slowly picking up speed, wage gains are stabilising, if only slowly, and inflation is approaching the 2% target.
With expectations of ultra-loose monetary policy slashed dramatically, investors foresee far fewer rate cuts from the US Federal Reserve than originally expected, thereby pushing the dollar higher against most currencies.
And as far as Forex online trading analysts are concerned, the pound will feel the force.
Vanguard, one of the world’s largest asset managers, has predicted that the BOE will reduce rates by half of a percentage point this led us to scale back our expectations for the pace of rate cuts thereafter.
