Consider all of those developments together, on Thursday the US Dollar (USD) put in a spectacular performance against its major competitors. The USD/JPY pair exploded up over 0.7% as traders jumped in front of the big news event, Fed Chair Jerome Powell’s speech to the Jackson Hole Economic Policy Symposium. The USD Index surged as high as an 11-day high, to close at 98.75. That’s an almost 1% jump for the week. Traders are anxiously waiting to read clues as to the economic outlook and policy frameworks. Other currency pairs are swinging wildly amid the dollar’s strength.
Early European session on Friday saw the USD/CAD pair high-fly to a fresh three-month high, blasting above the figure of 1.3900. This spike to record highs demonstrates the greenback’s continued dominance on the foreign exchange market. At the same time, GBP/USD kept up its downward trend, down 0.3% on Thursday – its fourth consecutive day of losses. The EUR/USD major pair came under heavy bearish sentiment. It dipped under the 1.1600 level, with it falling by roughly 0.4% – the overall strength of the USD was a contributing factor here.
USD Strength Driven by Economic Data
The US Dollar’s recent rally can be attributed to a combination of factors, particularly positive economic indicators that emerged in the latter half of Thursday. Tucked within the preliminary S&P Global Purchasing Managers’ Index (PMI) data for August came more good news. Private sector economic activity exploded by more than economists had predicted. This unexpected data probably played a big part in the dollar’s bullish momentum, as it was yet another sign of strong foundations for the US economy.
It was the economic data that caused the USD Index to climb by nearly 0.4% on Thursday. Traders are becoming increasingly bullish on the dollar’s prospects. This trend persisted into Friday morning, strengthening the dollar’s attractiveness as investors look for more clues from Powell’s speech.
The Federal Reserve Chair is set to deliver a speech focused on “Economic Outlook and Framework Review” at Jackson Hole. Analysts expect Powell to address current economic conditions and potential monetary policy adjustments, which could further influence market sentiment and currency movements.
Currency Pair Movements
On Thursday the USD/JPY currency pair displayed significant bullish momentum, surging more than 0.7%. This increase only reinforces the Japanese Yen’s vulnerability in a time of Fed-induced high US interest rates and inflationary pressures. Put another way, the dollar is riding high against the Yen. This is consistent with market expectations that the Federal Reserve’s policies will yield a stronger dollar in the short run.
The GBP/USD currency cross plunged sharply on Thursday. It dropped 0.3%, its fourth consecutive day of losses. 5 Reasons why the Pound Sterling is continuing to drop. What’s causing it The ongoing crisis in the UK economy and the increasing geopolitical tensions are hugely contributing factors here. Analysts note that the historical significance of the GBP as one of the oldest currencies in circulation since 886 AD adds to its legacy but does not shield it from current market dynamics.
In the interim, the EUR/USD cog was the modestly bearish pressure throughout Thursday’s trading session. The duo fell under 1.1600. Of that decline, it lost around 0.4% of that just from the dollar’s stellar performance against the other global currencies. Investors are particularly keen to see how this grip this pair has on both local economic data response and general risk on/risk off market behaviour.
Upcoming Economic Releases and Market Sentiment
Looking forward, traders should closely watch upcoming economic data releases to get an idea of where currency movements will go in the future. Statistics Canada’s Retail Sales data for July will be released September 22. Given the importance of consumer spending in Canada, this information could impact the USD/CAD exchange rate by clarifying the strength/weakness in Canadian consumer spending.
Our global markets are intensely focused on the policy of the Federal Reserve. Consequently, Powell’s speech at Jackson Hole will be a must watch event for financial markets. Market participants will parse his comments for clues about upcoming interest rate hikes and fiscal policies.
As the week progresses, fluctuations in currency pairs will likely depend on both economic data releases and Powell’s insights regarding monetary policy directions. Traders continue to be modestly bullish on the US economy. At the same time, they’re steering through a sea of uncertainty in the other big currencies.