Intro
It was a milder week in forex compared to the recent ones – we didn’t see +2% drops and rises! This may have been due to the lack of high-impact news events.
However, this week should be a massive contrast as we will witness FOUR interest rate decisions in three days. So, buckle up as we dive deeper into our latest market sentiment report.
Market Overview
Here is a brief sentiment report for all major currencies.
US Dollar (DXY): Bearish
The US dollar has experienced fluctuations due to escalating trade tensions under President Trump’s administration. Concerns over tariff policies have raised fears of an economic slowdown, leading to increased market volatility.
The Fed is anticipated to hold the interest rate (a 97% chance) this week but would likely cut it at least once in 2025.
Key news to watch: Interest rate decision on Wednesday; Initial Jobless Claims on Thursday.
Euro (EUR): Bullish
The Euro has been under pressure due to vague threats of U.S. tariffs on European goods, adding to economic uncertainties within the Eurozone.
However, the currency hit phenomenal heights recently, supported mainly by Germany’s announcement of a €500 billion infrastructure fund and a relaxation of borrowing limits. Europe’s efforts at drafting a peace plan for Ukraine also contributed to the euro’s strength.
British Pound (GBP): Bullish
The pound recently climbed against the U.S. dollar to November levels, aided by the favourable reception to the UK visit of Ukrainian President Volodymyr Zelenskiy.
Overall, this currency has remained relatively stable. The Bank of England is maintaining a cautious approach to rate cuts (with a 93% chance of a hold on Wednesday) amid rising inflation and economic uncertainty linked to the US tariffs.
Key news to watch: unemployment rate and interest rate decision on Thursday.
Japanese Yen (JPY): Bullish
Japan’s inflation rally is fueling rate hike expectations from the Bank of Japan, making the yen more appealing. However, there is an 85% likelihood of a hold by the central bank this week. Nevertheless, the safe-haven status of the yen is still drawing in funds amid global uncertainty.
In the long term, we should also keep an eye on US Treasury yields – rising yields = lower JPY, while lower yields = higher JPY.
Key news to watch: interest rate decision on Wednesday; inflation rate YoY on Friday.
Australian dollar (AUD): Neutral
Despite global trade tensions, the AUD has appreciated slightly due to global risk sentiment after the U.S. administration delayed imposing auto import tariffs on Canada and Mexico. Yet, China’s economic health concerns (because of Australia’s close trade relations) can be negative for the currency.
New Zealand dollar (NZD): Bearish
The New Zealand Dollar has declined sharply due to its sensitivity to global risk sentiment. The threatened U.S. tariffs have triggered a sell-off in risk-sensitive currencies, and the NZD has been especially affected. The currency is closely linked to global trade flows, so it is vulnerable in the current environment.
The Reserve Bank of New Zealand also dropped the interest rate recently by 50 basis points, further adding to the bearish bias.
Canadian dollar (CAD): Bearish
Unsurprisingly, the Bank of Canada delivered a rate cut for the Canadian dollar. CAD has struggled amid trade uncertainties and the Bank of Canada’s concerns over inflation and weaker growth. The recent election of Mark Carney as Prime Minister has also added to its volatility.
Key news to watch: inflation rate YoY on Tuesday.
Swiss Franc (CHF): Bearish
Uncertainty in the global economy continues to propel demand for CHF. The Swiss franc is still a safe-haven currency. However, the Swiss National Bank wants to keep interest rates in the negative (with a 75% probability of a cut this week).
The new SNB chairman is more keen to cut rates than the last chairman, with the SNB aiming for neutral rates between 0 and 0.5% (currently at 0.5%).
Key news to watch: interest rate decision on Thursday.
