The Dollar continued to dominate as the strongest currency for another week, supported by expectations of gradual rate cuts by the Fed. The recent rate cut from the ECB also gave the greenback a boost. However, the momentum behind the Dollar’s rise seems to be slowing down. Factors such as a strong risk-on sentiment and sluggish U.S. Treasury yields are preventing further gains. Additionally, the possibility of intervention from Japanese authorities is keeping the Dollar’s advances against the Yen in check.
Sterling emerged as the second-best performer this week, driven by mixed economic data from the UK that has left the BoE’s policy outlook uncertain beyond the anticipated November rate cut. The Pound also strengthened against the Euro, reaching its highest level since mid-2022. On the other hand, the Swiss Franc ended the week at the bottom of the performance chart, with the Euro not far behind.
The Australian Dollar faced challenges despite a temporary bounce following positive jobs data. The lack of concrete measures in China’s recent stimulus announcements continues to weigh on the Aussie. Moreover, broader risk sentiment in the Asia-Pacific region, particularly in China, Hong Kong, and Japan, is adding further pressure on the currency.
In the U.S., equity markets saw record-breaking performances last week, with both the DOW and S&P 500 closing at new highs for six consecutive weeks. Investors are optimistic about the Fed’s gradual approach to monetary policy easing. While there is still an expectation of two more rate cuts by the Fed before the year ends, recent comments from Fed officials suggest that a single cut may also be possible. This shift in expectations is reflected in the fed fund futures, which now predict a 77% chance of a total of 50 bps of rate cuts by year-end.
Although the Dollar remained the strongest currency last week, its momentum was somewhat limited by the risk-on environment and the slowdown in U.S. Treasury yields. Technically, the Dollar Index is facing significant resistance, which could impede further appreciation in the near term.
In the Eurozone, the ECB’s decision to lower the deposit rate and President Christine Lagarde’s cautious statements indicate that further easing measures may be on the horizon. The DAX index reached new record highs but is now approaching a critical resistance zone around the 20k level. The Euro weakened against the Pound last week, driven by mixed economic data from the UK. While a BoE rate cut in December remains a possibility, the Pound remains relatively strong.
In Japan, the Yen briefly slipped against the Dollar but stabilized following verbal interventions from Japanese officials. The Nikkei Index experienced a selloff amid growing political uncertainty ahead of the upcoming general election. Technically, Nikkei’s rise is seen as part of a corrective pattern, with a potential bearish reversal signal. Extended selloff in Nikkei could lead to a lower USD/JPY.
Overall, the AUD/USD pair edged lower but recovered, with the bigger picture suggesting a medium-term corrective pattern. The long-term trend from the 2020 low seems to have completed, and the focus now is on potential bullish movements towards higher resistance levels.
