Dollar’s Fluctuations in the Foreign Exchange Market: Analysis and Outlook

2023-11-08 20:42:00

Around 9 p.m., the dollar fell by 0.05% against the single European currency, to 1.0705 dollars per euro. On the other hand, it gained 0.11% against the British pound at 1.2287 dollars per pound.

After three days of recovery against the main currencies, the dollar took a break on Wednesday, the euro regaining some ground, while the yen depreciated to a level close to its historic lows.

Around 8:00 p.m. GMT, the dollar fell by 0.05% against the single European currency, to 1.0705 dollars per euro. On the other hand, it gained 0.11% against the British pound to 1.2287 dollars per pound.

The dollar index, which compares the greenback to a basket of currencies, was stable at 105.56 points (+0.02%).

This return of the dollar “seems unlikely to go further given the fact that the markets are convinced that the cycle of Fed rate hikes has reached a peak,” estimated Shaun Osborne of Scotiabank.

After the last monetary meeting last week, where the American Central Bank (Fed) left interest rates as they were and a disappointing American employment report, the greenback looked bad.

But since then, “some Fed speakers (…) have sent a cautious message to the market, indicating that the Fed’s battle against inflation is not yet won and that tightening could continue,” recalls Ipek Ozkardeskaya, Swissquote analyst.

On Monday, Minneapolis Fed President Neel Kashkari said it was too early to declare victory against inflation.

A Fed governor, Michelle Bowman, known for her so-called “hawkish” positions in favor of a strict monetary policy, also estimated on Tuesday that a further increase in rates could be necessary to curb inflation, if it it will not slow down enough over the next few months.

“Federal Reserve officials have worked hard” for the market to revise its expectations “by reopening the door to further rate increases,” confirms Ricardo Evangelista, analyst at ActivTrades.

Another Fed Governor Lisa Cook recalled on Wednesday during her speech at the 2023 “Financial System Conference” in Dublin that a worsening of global geopolitical tensions, particularly those involving Russia, the Middle East and China, could have negative repercussions on global markets.

Escalating tensions “could lead to weaker economic activity” and fuel inflationary pressures, she said.

The Japanese yen weakened for its part, falling to 151.01 yen per dollar (-0.42%) and again approaching the threshold of 151.95 yen reached at the end of October 2022, which was a first since July 1990.

Compared to the euro, the yen also fell by 0.46% to 161.65 yen per euro, a level not seen in 15 years.

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