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Forex Today: Choppy action continues as markets remain in holiday mood

Here is what you need to know on Friday, December 27:

Trading action in financial markets remain choppy on Friday as trading conditions stay thin following the Christmas break. The US economic calendar will feature preliminary Goods Trade Balance and Wholesale Inventories data for November.

Wall Street's main indexes closed little changed on Thursday and the US Dollar (USD) Index ended the day flat. The USD Index fluctuates in a very tight range above 108.00 in the European morning on Friday and US stock index futures trade in negative territory, reflecting a cautious mood. The US Department of Labor reported on Thursday that the weekly Initial Jobless Claims decreased slightly to 219,000 in the week ending December 21, from 220,000 in the previous week. This reading came in better than the market expectation of 224,000.

US Dollar PRICE This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.

 USDEURGBPJPYCADAUDNZDCHF
USD 0.23%0.38%0.90%0.27%0.48%0.44%0.83%
EUR-0.23% 0.11%0.61%0.02%0.31%0.19%0.59%
GBP-0.38%-0.11% 0.43%-0.09%0.18%0.08%0.48%
JPY-0.90%-0.61%-0.43% -0.60%-0.35%-0.44%-0.15%
CAD-0.27%-0.02%0.09%0.60% 0.25%0.17%0.57%
AUD-0.48%-0.31%-0.18%0.35%-0.25% -0.12%0.28%
NZD-0.44%-0.19%-0.08%0.44%-0.17%0.12% 0.36%
CHF-0.83%-0.59%-0.48%0.15%-0.57%-0.28%-0.36% 

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

During the Asian trading hours, the data from Japan showed that the Tokyo Consumer Price Index rose 3% on a yearly basis in December, following the 2.6% increase recorded in November. Meanwhile, the Bank of Japan's Summary of Opinions from the December policy meeting showed that one member argued that it was necessary to adjust the degree of monetary support in a preemptive manner, while another member said that the timing for a rate hike was approaching but they needed to be patient due to the uncertainty in the US economy. USD/JPY touched its strongest level since mid-July above 158.00 late Thursday before entering a consolidation phase. At the time of press, the pair was trading in the red at around 157.70.

GBP/USD registered small losses on Thursday but managed to stabilize above 1.2500 early Friday.

Gold edged higher on Thursday and gained more than 0.5% on a daily basis. XAU/USD clings to small gains above $2,630 in the European morning on Friday and looks to end the week in positive territory. 

EUR/USD struggles to gain traction and retreats toward 1.0400 after closing marginally higher on Thursday.

Bank of Japan FAQs

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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