Intro
It was an interesting week in forex. Growing tensions in the US led to the dollar’s substantial loss.
This was against weak currencies like AUD and NZD, indicating how intense the situation is and that the market isn’t trusting the greenback present. The Swiss franc was also pretty strong, reaffirming its status as a safe haven during this uncertainty.
Let’s review the sentiment biases for all major FX currencies, where things remain largely the same from the previous report.
Market Overview
Here is a brief sentiment report for all major currencies.
US Dollar (DXY): Bearish
The greenback continues to steadily depreciate amid unwanted tariff policies, geopolitical tensions, niggling inflation risks and a slight uptick in unemployment.
This is prompting predictions of a Fed rate cut soon. However, according to short-term interest markets, there is a 77% chance of a hold next month.
Euro (EUR): Bearish
As predicted with a 99% chance, the European Central Bank dropped the interest rate by a notable 2.25%. This marks the seventh consecutive cut, affirming the ECB’s dovish status.
The currency is underperforming amid soft inflation data and lingering economic weakness in Germany and France. Additionally, the Eurozone may need to address potential spillover effects from the ongoing US-China trade tensions.
British Pound (GBP): Neutral
The Bank of England is dovish and has hinted at cutting the interest rate a few times this year. There is an 89% chance (according to the markets) of them doing this next month. Ultimately, they are balancing persistent inflation (having decreased the rate last week to 2.6%) with weakening economic growth.
On a lighter note, political stability and relative calm in Brexit-related risks can offer some support.
Japanese Yen (JPY): Bullish
The yen has surged as investors seek safety amid geopolitical tensions and a weakening dollar. Furthermore, Japanese inflation is stable. While the Bank of Japan remains cautious (with an expectation of a rate hold next month), the risk-off tone globally has benefited the yen.
Australian dollar (AUD): Bearish
The Aussie continues to face severe headwinds for several reasons. Firstly, it is tied to China, whose tariff tensions with the US have had a negative impact. The ASX 200 index has plummeted, wiping out billions in value, of late.
Let’s also not forget the slowing domestic economy, housing crisis and mixed commodity prices. Finally, the Australian central bank maintained a hold on the interest rate recently and is expected to cut next month.
New Zealand dollar (NZD): Bearish
The Kiwi remains pressured by the RBNZ’s dovish rhetoric and slowing demand from key trading partners. Dairy exports are underperforming, and risk-off sentiment reduces appetite for higher-yielding currencies like NZD.
Like the Reserve Bank of Australia, New Zealand’s central bank needs to support economic growth (delivering a rate hold a few weeks ago), considering global trade tensions.
Canadian dollar (CAD): Neutral
The suspension of U.S. tariffs on Canadian imports has alleviated some pressure on the CAD. However, it remains sensitive to oil prices and U.S. economic policies.
The Bank of Canada delivered an expected hold in the interest rate and is predicted to do the same next month. All of this is contributing to a mixed outlook.
Swiss Franc (CHF): Neutral
The Swiss franc is gaining on safe-haven demand and relatively hawkish tones from the Swiss National Bank – although there is a 62% chance of a rate cut next month. It remains resilient despite the ongoing weakness in the Eurozone. Strong capital inflows support the franc during periods of global stress.
