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Forex Today: Risk mood improves to start new week

Here is what you need to know on Monday, November 24:

Markets turn risk-positive to start the week as investors reassess the odds of a Federal Reserve (Fed) rate cut in December. In the European session, business sentiment data from Germany will be watched closely by market participants. The US economic calendar will feature mid-tier data releases on Monday.

US Dollar Price Last 7 Days

The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the strongest against the Swiss Franc.

USDEURGBPJPYCADAUDNZDCHF
USD0.93%0.50%1.39%0.56%1.18%1.38%1.85%
EUR-0.93%-0.32%0.85%-0.35%0.24%0.47%0.94%
GBP-0.50%0.32%0.92%-0.03%0.55%0.79%1.26%
JPY-1.39%-0.85%-0.92%-0.81%-0.21%-0.02%0.43%
CAD-0.56%0.35%0.03%0.81%0.62%0.80%1.29%
AUD-1.18%-0.24%-0.55%0.21%-0.62%0.24%0.70%
NZD-1.38%-0.47%-0.79%0.02%-0.80%-0.24%0.47%
CHF-1.85%-0.94%-1.26%-0.43%-1.29%-0.70%-0.47%

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).

Dovish comments from Fed policymakers fed into expectations of a 25 basis points (bps) rate cut in December on Friday. According to the CME FedWatch Tool, markets are currently pricing in about a 70% probability of a rate cut, compared to less than 50% a few days earlier. Fed Governor Stephen Miran, who preferred a 50 bps rate cut in the previous two policy meetings, noted that he would vote for a 25 bps rate cut in December, if his vote were to be the deciding factor whether the Fed would lower the policy rate. Meanwhile, NY Fed President John Williams hinted that he could vote for a cut at the next meeting, saying "I view monetary policy as being modestly restrictive. Therefore, I still see room for a further adjustment in the near term."

The US Dollar (USD) Index erased its daily gains late Friday to end the day virtually unchanged. Early Monday, the USD Index fluctuates in a tight range above 100.0. In the meantime, US stock index futures were last seen rising between 0.2% and 0.7% after Wall Street's main indexes registered decisive gains heading into the weekend.

Gold kept its footing on Friday but posted marginal losses for the week. XAU/USD stays relatively quiet and moves sideways, slightly above $4,050, in the European morning on Monday.

EUR/USD holds steady above 1.1500 to start the European session after losing nearly 1% in the previous week.

GBP/USD fell about 0.6% last week before going into a consolidation phase near 1.3100 early Monday. On Wednesday, Chancellor of the Exchequer Rachel Reeves will deliver the Autumn Budget, which could influence the Bank of England's (BoE) policy outlook and Pound Sterling's valuation.

USD/JPY turned south on Friday and snapped a five-day winning streak. The pair holds its ground in the European morning and trades above 156.50.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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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