The NZD/USD currency pair has reached its highest point since January 2024, driven by a weakening US dollar and expectations of US interest rate cuts. However, technical indicators suggest a potential downward trend in the near future, indicating a possible correction in the market.
The release of the July Federal Open Market Committee (FOMC) minutes has further solidified expectations for a rate cut at the upcoming September meeting. The minutes highlighted continued progress in disinflation, leading to a weakening of the US dollar and a surge in gold and cryptocurrency prices. The market is now pricing in a 61.5% probability of a 25-basis-point rate cut in September.
Bitcoin analyst Jamie Coutts predicts a significant surge in Bitcoin’s price, potentially reaching six figures, fueled by central bank liquidity injections and a weakening US dollar. The prediction hinges on continued global monetary easing, particularly from the Bank of Japan and the People’s Bank of China.
The European Central Bank’s (ECB) latest report highlights a decline in the euro’s share in foreign exchange holdings. In 2023, the euro’s share dropped to 20%, driven by factors such as the rising popularity of the US dollar, Japanese yen, and other non-traditional reserve currencies. The ECB also notes that the Swiss National Bank has significantly reduced its euro-denominated reserves. Despite rising interest rates in the eurozone, the currency’s attractiveness has not improved due to higher rates in other regions and the eurozone’s muted economic prospects. The report also expresses concerns about Russia’s plans to reduce its euro stockpile, which could further impact the currency’s status in global foreign exchange reserves.
The release of Q1 GDP data has sparked market volatility, with the US dollar strengthening and equities weakening due to elevated inflation numbers. Goldman Sachs notes that growth was not as weak as initial estimates, however, government spending slowed more than anticipated. The pricing data in the PCE report caught the market off guard, with core PCE projections indicating a higher-than-expected rise of 0.48% compared to the consensus of 0.3%. Goldman Sachs remains cautious, forecasting a more modest increase of 0.33%. The PCE data is scheduled to be released on Friday.
The US dollar retreated from recent highs, trading slightly lower ahead of the release of key economic indicators. Meanwhile, the Japanese yen continued its decline, falling to its lowest point against the dollar since 1990. The broader economic landscape remains a key driver for currency movements, with the dollar expected to maintain its dominance until signs of a slowdown in US economic exceptionalism emerge.
Gold has surged to record highs amid geopolitical tensions and economic uncertainties. China, the world’s largest gold consumer, has been accumulating reserves as a hedge against the potential decline of the US dollar. Other central banks and investors seek gold as a safe haven asset during periods of heightened geopolitical risk, such as the ongoing conflicts in Ukraine and Israel. Gold’s intrinsic value and independence from any single issuer or economy make it an attractive option during times of uncertainty.
The U.S. dollar recovered in early European trading on Wednesday after a decline in the previous session, with traders closely monitoring forthcoming economic data for indications of the Federal Reserve’s upcoming monetary policy decisions.
The dollar’s recent slide was mostly attributed to data indicating a decline in U.S. business growth, with activity falling to a four-month low in April. However, hawkish comments from Federal Reserve officials have suggested that this particular data point is unlikely to result in rate cuts being moved forward to the summer.
Gross domestic product data for the first quarter and personal consumption price expenditures data, the Fed’s preferred inflation measure, are expected to be released on Thursday and Friday, respectively, and may trigger more significant market movements. The first Fed rate cut is generally anticipated to occur in September, with November being the second most likely month and June now considered unlikely.
In Europe, the euro gave up some of its gains from the previous session, while the pound fell after initially benefiting from positive data on UK business growth. The Bank of England is anticipated to lower interest rates by at least half a percentage point this year, while the European Central Bank has indicated a rate cut at its next policy meeting in June.
In Asia, the yen weakened, bringing USD/JPY closer to the 155 level, despite warnings from Japanese authorities about possible government intervention to support the currency. The Bank of Japan’s policy meeting on Friday will be closely watched for any shifts in its outlook on inflation and economic growth.
Bank of America (BofA) has forecasted a rise in the USD/CNY exchange rate, projecting a peak of 7.45 by the third quarter of 2024. This outlook is attributed to persistent rate differentials and unbalanced policy measures. BofA has also revised its stance on various Asian currencies. The bank has turned bearish on the Korean won (KRW), neutral on the Indian rupee (INR), and remained neutral on several other Asian currencies, including the Hong Kong dollar (HKD), Indonesian rupiah (IDR), and Singapore dollar (SGD). This cautious approach reflects the strength of the US dollar and its potential impact on exchange rates and regional economic dynamics.
The US dollar remained stable in early European trading on Tuesday, while the euro gained on the back of positive European services activity data for April. Traders cashed in on recent safe-haven dollar gains following the easing of Middle East tensions and comments from Iranian officials indicating no retaliation against Israel. However, the greenback remains elevated due to strong economic data and hawkish Federal Reserve statements. Meanwhile, the eurozone PMI composite index rose to its highest level in almost a year, aided by a jump in the services PMI. Despite this, analysts anticipate interest rate cuts from the European Central Bank before the Federal Reserve, which may limit the euro’s gains. The British pound also strengthened on data signaling the fastest growth in business activity in nearly a year, although the manufacturing sector experienced an unexpected decline. The Japanese yen weakened against the dollar amid speculation of possible government intervention as it approaches new multi-year highs. The Bank of Japan’s policy meeting on Friday will be closely watched for any changes in interest rates, which were raised for the first time in 17 years in March.
