The dollar retreated a little on Monday following a weak US jobs report at the end of last week that fuelled bets about the likelihood of multiple Federal Reserve interest rate cuts this year and also in line with the shifts on forex trade platforms.
The yen weakened after a week of suspected interventions by authorities trying to shore up the Japanese currency from a 34-year low against the greenback of 160.245.
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The Japanese currency was the best-performing among major currencies during the previous week when it rallied by 3.5% – its biggest weekly advance since early December 2022.
A drop of 0.5% to 153.74 per dollar was seen for the yen, a popular play among market dealers, on the forex trading platform on Monday.
Neither the Japanese nor the British markets were open for a holiday, driving down trading volumes, but traders nonetheless stayed focused, especially in light of recent forex trading platform manipulations by their Japanese counterparts around times of similar thin volumes.
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While the more than 9 trillion yen the Bank of Japan spent last week stepping in to prevent the yen from strengthening while money fled to the relative safety of the dollar – a high-interest, low-risk currency – put a floor under the yen in the short term, the mood in the market remains downbeat.
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Strategists at Goldman Sachs say that while intervention efforts have limited effectiveness, they are a useful tool to prevent economic disruptions caused by sudden overreactions in currencies, and that they can stabilise the currency until the economic environment is more conducive to a resurging yen.
The latest on the forex trading platform shows that the yen is still struggling as U.S. rates rise and Japan’s are still near zero – pushing investors into assets that have the potential to make a return.
According to the most recent Commitment of Traders (COT) report from US regulators, though bearish bets on the yen have been scaled back a little, they’re still at their highest level since 2007.
As for the Fed, encouraging economic news that US job growth was slowing and that average hourly earnings had dipped has raised hopes that a so-called soft landing could be in the offing.
FX platforms are now pricing in nearly 50 basis points of Fed cuts this year, with a November cut virtually priced in.
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In forex trading, the dollar index, which represents the US currency against six others, ‘fell to 105.06 from Monday’s three-week low’, as the chair of the Federal Reserve Jerome Powell articulated ‘wide support’ for the Fed’s decision to stop raising its benchmark rate.
Such a positioning on forex trading platforms reflects Powell’s precise interpretation of monetary policy, while in other forex trading, the euro and sterling also rose ‘as traders awaited central bank rate decisions’.
The pound gained on Monday ahead of a Bank of England policy decision next Thursday, as markets digested the outcome of local elections showing hefty losses for the ruling Conservatives.
Sterling jumped nearly 0.3% against the dollar to $1.2580, close to a three-week high struck earlier this month.
Sterling was also 0.2% higher against the euro at 85.605 pence.
Trading volumes on forex trading platforms could have been low because it was a holiday in Britain and Japan on Monday.
On Thursday, the BoE will probably leave its key interest rate at 5.25%, where it’s been since August of last year.
However, some analysts on the forex trading platform expect the central bank to signal that it’s ready to start cutting rates as soon as June.
‘We expect the MPC to soften its communication, conditioning the FX market for the start of a cutting cycle,’ said Danske Bank economist Kirstine Kundby-Nielsen.
While money markets on forex trading platforms are yet to fully price a rate cut at the August meeting, they are pricing in roughly 50 basis points of easing in 2024 – which implies up to two quarter-point cuts.
This is a major move from where prices were forecast early in the year when traders on forex trading platforms also anticipated the cuts but expected them far earlier and more frequently.
Like in Europe and the US, the repricing of markets here is driven by persistent inflation and a very strong labour market, despite signs of economic softening.
As Goldman Sachs analysts put it on the forex trading platform, ‘With hawkish policy repricing causing the bulk of recent market moves, the pro-cyclical backdrop for the currency is less supportive than it was earlier in the year.’
As such, they’ve downgraded their three-month sterling forecast to $1.24, from $1.30.
On FX trading platforms, few currency traders gave much weight to the results of local elections in which the opposition Labour Party beat the governing Conservative Party in mayoral races in London and central England, potentially threatening the prime minister Rishi Sunak this year in an election that could come as soon as this summer.
‘The hangover from the local elections has not given the current UK Prime Minister Sunak much to shout about, and we do not believe this will change investor expectations for the upcoming general election,’ Paul Donovan, chief economist at UBS Global Wealth Management, wrote in a note to clients.
Labour is currently leading the Conservatives by 20 points in the polls: the party looks likely to take a majority in the House of Commons for the first time since 2005.
The South African rand was firmer on the foreign exchange trading platform on Monday morning as figures in April showed slight growth in the country’s private sector activity.
The rand was quoted at 18.4650 to the dollar at 0724 GMT, 0.3% higher than the previous close.
Meanwhile, the dollar was trading near its previous close of 105.17 against a basket of global currencies on foreign exchange trading platform.
An increase in business confidence in South Africa contributed to a modest increase in the country’s private sector activity in April, when companies improved their purchases and employed more people, according to the S P Global South Africa Purchasing Managers Index (PMI) released on Monday.
Traders in forex trading rooms will this week watch several speeches by Federal Reserve officials for clues about where interest rates might go in the world’s largest economy.
As with many currencies traded on forex trading platforms, the rand is as susceptible to global economic indicators, such as US economic data, as local economic reports.
On the stock exchange, the Top-40 (.JTOPI) and the broader all-share (.JALSH) each rose about 0.7% in morning trades.
Meanwhile, South Africa’s reference bond, the 2030 government paper, had strengthened in the forex space in the early trade session, its yield easing by 2 basis points to 10.585%.
The chairman of the Swiss National Bank (SNB), Thomas Jordan, said on Monday that the forex trading platform could benefit from the digital tokenisation of assets to ensure safer and faster payments, noting that central banks are examining ways to take account of such technological innovations being promoted by their proponents as faster and cheaper to transact.
Tokenisation is where a financial asset is represented digitally on a programmable platform (typically distributed digital ledger technology).
Here’s how Jordan put it with regards to options for central banks: We can simply wait until tokenisation is adopted on a wide scale; we can go ahead of the market, blazing a trail; or we can experiment incrementally, learning step by step what works best for settling transactions in tokenised assets in collaboration with market participants.
In effect, the SNB is moving towards the third model of assessing the costs and benefits of tokenisation.
One of its live projects, Helvetia III, involves the use of tokenised central bank money in settling payments, which has been used to settle four bond issuances by local governments in Switzerland.
Jordan described this initiative on the forex platform as follows: ‘With our Helvetia III pilot, we are actively supporting the private sector in exploring how tokenisation can improve the current financial system.
He similarly noted that the world’s first issuance of wholesale Central Bank Digital Currency (CBDC) on a regulated third-party platform demonstrated the SNB’s ‘willingness to embrace technology progress while acting responsibly and prudently’.
The Indian rupee traded little changed on foreign exchange markets on Monday as importer demand for the dollar offset potential gains after a slide in US benchmark bond yields on weak US economic data that raised betting on a Federal Reserve rate cut in September.
At 9:50am IST, the rupee was at 83.4425 per US dollar, close to its previous session’s close of 83.4225.
Asian currencies were also mixed. The offshore Chinese yuan was down 0.3%, while the Korean won appreciated by 0.9%.
The dollar index stood at 105.1, after retreating to a near one-month low on Friday after US jobs data missed expectations and the country’s unemployment rate increased.
Such an economic backdrop has fuelled markets’ expectations of two rate cuts in 2024. For the forex calendar 3 June 2024, forex brokers are currently expecting just over 45 basis points of rate cuts.
The rupee was under pressure early in forex trading because the dollar demand was there during the fixing rate, said a forex trader in a state-run bank.
The dealer said the rupee was unlikely to slip too much below current levels and suggested safe levels of 83.40-83.50 for the day, on the forex trading platform.
Dollar-rupee forward premiums rose slightly, with the 1-year implied yield up 2 basis points to 1.68%.
U.S. bond yields, meanwhile, dropped last Friday, with the 1-year U.S. Treasury yield falling 4 bps to 5.13%.
Anindya Banerjee, head of foreign exchange research at Kotak Securities, believes the RBI might step in to purchase dollars if the rupee continues to depreciate.
The RBI’s foreign exchange reserves, which stand at $637.92 billion, a seven-week low as of 26 April, add to the RBI’s concerns.
Meanwhile, forex trading sites watch for comments Friday afternoon from Federal Reserve officials that could shed more light on future interest-rate decisions by the central bank.
