Yen Rebounds, Dollar’s Upsurge Falters, Sterling Stays Steady

Yen Rebounds, Dollar’s Upsurge Falters, Sterling Stays Steady

The Yen as a whole became the strongest currency in the past week, continuing its gains this month. Domestically, political uncertainty disappeared when Yoshihide Suga took over as prime minister, ensuring the continuity of Abenomics.

Externally, geopolitical risks in the South China Sea and the Taiwan Strait have increased, and relations between the United States and China have deteriorated further. Coronavirus infections have returned with another surge in Europe. Equity markets looked vulnerable to a deeper correction. The outlook for the yen is ahead.

Sterling proved to be one of the strongest. But, most likely, this is just a corrective recovery, as the risks remain in the opposite direction. The dollar tried to rise after the FOMC meeting, but quickly fell and ended in different directions. The Canadian dollar has not received support from the rise in oil prices, while the Swiss franc was surprisingly weak.

Sterling partly weathered the dovish Bank of England rate decision last week, which hinted that it was approaching negative interest rates. The pound recovered only because it was digesting the sharp losses of the previous week. The risk of no-deal Brexit remains as coronavirus infections rise again in the UK.
Dollar’s Strength Falters on Post FOMC Rally
The dollar tried to rally last week after the FOMC eliminated risks, but without any unexpected hostility. The statement reflects the idea of ​​averaging inflation targeting, as the Fed “will aim to moderate inflation above 2% for some time so that inflation averages 2% over time.” The latest forecasts show that the federal funds rate will remain at the current level of 0-0.25% until at least 2023, which is not surprising.

However, the dollar’s rise was disappointing and quickly faded away. The dollar index fell below short-term resistance at 93.66, which maintains a bearish outlook. The development was reflected in the EUR/USD pair, which fell to 1.1737 but recovered.

At the moment, the outlook for the DXY has not changed: another fall below 91.74 cannot be ruled out. But a solid break of 93.66 should at least start a correction to drop from 102.99 to 91.74 and reach the 38.2% retracement at 96.03.

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Author : Azeez Mustapha


Azeez Mustapha is an experienced author, trader, markets analyst, signals strategist, and funds-manager.