Global Market Snapshot 26th August 2024

This week, the forex market experienced significant volatility due to multiple factors. The US Dollar Index plummeted to its lowest point in recent months, driving up other major currencies. Federal Reserve Chairman Jerome Powell sent a strong signal of rate cuts at the Jackson Hole Symposium, sparking intense market reactions regarding the Fed’s future policy direction. Additionally, Canada’s retail sales data impacted the Canadian dollar’s movement, while the British pound continued its upward trend due to expectations surrounding the Bank of England’s monetary policy. Below is a detailed analysis of this week’s major currency trends.

US Dollar: Powell Signals Rate Cuts

The US Dollar Index continued to decline this week, reaching its lowest point since January, closing at 100.63. Federal Reserve Chairman Jerome Powell stated at the Jackson Hole Symposium that the Fed’s confidence in inflation returning to 2% has strengthened and hinted that the Fed may cut interest rates in September, even expressing openness to a 50-basis-point cut. This statement nearly marked the end of the Fed’s historic anti-inflation measures, and market expectations for the Fed to ease monetary policy quickly surged.

USDCAD dropped 104 pips to 1.3511, with the Canadian dollar influenced by both Canada’s retail sales data and expectations of a Federal Reserve rate cut. The Canadian dollar posted its largest gain of the year. June retail sales data from Canada showed a 0.3% decline compared to the previous month, signalling weaker consumer spending and suggesting that the Bank of Canada may cut rates further next month. This provided short-term support for the Canadian dollar.

GBPUSD, The British pound extended its rally this week, reaching 1.31933 USD on Friday, marking its highest point since March 2022. Despite the Bank of England making a cautious rate cut decision in August, the resilience of the UK economy and stubborn inflation have left the market uncertain about further rate cuts. The Federal Reserve’s dovish shift led to expectations of a growing divergence between the economic outlooks of the UK and the US, which further fuelled the pound’s rise.

EURUSD surged to a 13-month high of 1.1201, with the euro benefiting from a weaker dollar and steadily rising against the USD throughout the week. Despite relatively muted economic data from the eurozone, the dollar’s decline provided room for the euro to climb. ECB President Christine Lagarde indicated that, despite persistent inflationary pressures, the ECB would maintain its current monetary policy, which offered some support to the euro.

BTC, Bitcoin’s price dipped 0.3% to $63,952.7 on Monday after a weekend rally lost momentum, though optimism around potential interest rate cuts kept it near a one-month high. The cryptocurrency saw strong gains in recent days following comments from Federal Reserve Chair Jerome Powell hinting at imminent rate cuts, which typically boost speculative assets like crypto by increasing liquidity. However, Bitcoin’s advance was tempered by strength in the Japanese yen, which has unsettled risk-driven markets.