Foreign Exchange Market – Will the US Dollar Stay Strong?

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The US dollar started off the week strongly gaining against most of the major world currencies, however, it did give some of those gains back late in the week. The good performance early in the week was likely due, in large part, to the continued reaction to last week’s US interest rate hike which went from 2% up to 2.25%. When that announcement was made on Wednesday, September 26th, the dollar began to move and didn’t really stop until late this week. There was relatively little news from the US this week so the momentum of the rate hike news along with mediocre to negative news coming out of other areas of the world helped to carry the dollar’s strength.

On Friday, we learned that the unemployment rate in the US has fallen to levels that we have not seen in nearly 50 years, from 3.9% to 3.7%. Non-Farm payroll increased as well, so we ended the week with some good news, however, the overall employment report fell short of analysts’ expectations. The market in general reacted negatively to the news but any movement was quickly retraced. After the announcement and the retracement, the dollar has lost some ground throughout the Friday trading day.

The British Pound had a very good week against the Euro and most other major currencies; this may have something to do with a potential deal between the UK and the European Union around the Brexit agreement. It appears as though the two sides may be very close on a potential resolution. It is scheduled to happen next spring whether there is an agreement around it or not, so it will either happen the easy way or the hard way. There are still those in the UK that want to reverse Brexit and they are working to do so, however, some of the individual members of the European Union have expressed doubt that a deal on a reversal could be reached in a timely fashion. Any agreement would have to be ratified by the European Parliament and there is a very small amount of time to accomplish this.   

The Yen has been steadily losing value against the US dollar since the beginning of September, but it appears its losses may be slowing down, at least for the near term. The dollar actually gave back some gains to the Yen at the end of the week and it looks as though the Yen’s fall may be coming to an end, or at least it may flatten out, slowing down for a time. The British Pound strengthened against the Yen which makes it look like the Pounds onslaught against the Yen’s value may be about to increase again. The Yen appreciated against the Pound very strongly in the middle of the summer but since the middle of August the Pound has recouped all of the loss and it may be poised to take another run up against the Yen. The Yen and Euro have moved in a similar fashion to how the Yen and Pound have moved, but the Euro has been giving back some of the gains since the last week of September; it appears that this may be a trend that is developing and could continue.

We will likely see a quiet beginning to next week in Forex trading because the US, Japan and Canada all have bank holidays at the beginning of the week.