Intro
While the yen and Swiss franc are considered safe-haven currencies, they experienced declines last week. I am particularly keen on the JPY this week, given its upcoming interest rate decision. The central bank is likely to keep the interest rate unchanged, which would reduce the chances of bullish sentiment.
We are heading into a new month where, as always, the US unemployment rate and Non-Farm Payrolls are on the way. Let’s see if this has any effect on a compromised dollar.
Below are our sentiment biases for all major FX currencies this week!
Market Overview
Here is a brief sentiment report for all major currencies.
US Dollar (DXY): Bearish
The greenback continues to steadily depreciate amid unwanted aggressive 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.
Key news to watch: NFP, and unemployment rate on Friday.
Euro (EUR): Neutral
The European Central Bank recently dropped the interest rate by a notable 2.25%. This marks the seventh consecutive cut, affirming the ECB’s dovish status. We also have to factor in lingering economic weakness and soft inflation data.
Despite these headwinds, the euro has shown resilience, partly due to decreased impact from U.S. tariffs.
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): Bearish
Investors generally seek safety in the yen amid geopolitical tensions and a weakening dollar. However, the currency faces pressure for a few reasons.
Inflation has risen to almost 4% since September 2024, driven by rising food prices and reduced government energy subsidies. The International Monetary Fund (IMF) has also downgraded Japan’s economic growth forecast for 2025 to 0.6%.
Finally, the Bank of Japan is cautious in its monetary policies, with a high likelihood of a rate hold this week.
Key news to watch: interest rate decision on Thursday.
Australian dollar (AUD): Neutral
The Australian economy faces challenges from global trade tensions and a slowdown in China, its major trading partner. Aussie’s performance is closely tied to commodity prices and global risk sentiment, both of which are mixed to negative.
Finally, the Australian central bank recently maintained a hold on the interest rate and is expected to cut it next month.
Despite this, economic growth is modest, and inflation remains within target. Additionally, the ASX 200 index, which had taken a nosedive a few weeks ago, has recovered notably on the charts.
New Zealand dollar (NZD): Neutral
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 is reducing appetite for higher-yielding currencies like NZD.
Like the Reserve Bank of Australia, New Zealand’s central bank needs to support economic growth, considering global trade tensions. Also, like the Aussie, the kiwi has risen significantly of late against major currencies, such as USD and EUR.
Canadian dollar (CAD): Neutral
The suspension of U.S. tariffs on Canadian imports has alleviated some pressure on 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): Bullish
CHF has surged to a decade-high against the dollar, driven by global trade tensions and investor demand for safe-haven assets. The Swiss National Bank faces pressure to manage the strength of the franc, with speculation about the potential reintroduction of negative interest rates.
