Global Forex Market Update: June 2023

Rebound of the US Dollar

Recent Performance

The U.S. dollar recently rebounded after hefty overnight losses following weak economic data. It received a boost earlier in the week when the U.S. Federal Reserve forecast at least two more hikes this year. However, weak U.S. economic readings raised questions over how much higher the Fed can raise interest rates.

Future Predictions

The future of the U.S. dollar will depend on a variety of factors, including the Federal Reserve’s decisions on interest rates and the performance of the U.S. economy.

 

Pressure on the Japanese Yen

BOJ’s Monetary Policy

The Japanese yen weakened after the Bank of Japan maintained its interest rates at very low levels and signaled that it will continue to allow 10-Year government bond yields to trade within a tight range.

Future Predictions for the Yen

While the yen is currently under pressure, the future will depend on a variety of factors, including how long the BOJ maintains its current monetary policy and how other global economies perform. The potential for intervention by Japanese authorities also adds an additional layer of complexity to the future outlook for the yen.

 

Eurozone Inflation Data

The Role of the European Central Bank

Over in Europe, the European Central Bank (ECB) has been making waves. Following the rate hike and hawkish forward guidance from the ECB, the euro fell slightly from the previous session’s one-month high. ECB President Christine Lagarde stated that another rate hike in July was highly likely and that the central bank still has “ground to cover” to stave off high inflation.

Upcoming Inflation Data Release

The final reading of the May eurozone consumer price index is due, and it’s expected to show that the index came in at 6.1% on an annual basis, a drop from 7.0% the prior month. However, the core CPI, which excludes volatile energy and food prices, is likely to prove more difficult to tame, and is seen slipping to 5.3% from 5.6%.

 

Sterling Climbs

Expectations from the Bank of England

Across the Channel, the sterling has been on a rise, reaching a more than one-year peak. This climb is on the back of rising expectations that the Bank of England will raise interest rates for the 13th meeting in a row next week. These expectations were slightly scaled back after the Fed meeting, but they still imply five 25 basis point rate increases from current levels before the end of the year.

The Current State of Sterling

The state of the sterling and the UK economy will be further clarified with the latest quarterly survey of the views of UK consumers on inflation and rates. As Britain contends with one of the highest inflation rates among major advanced economies, the potential for additional rate hikes by the Bank of England will be a key factor to watch.

 

Other Significant Currencies

Australian Dollar and Chinese Yuan

Elsewhere, the Australian Dollar has seen a slight fall, while the Chinese Yuan remains near a six-month low. This comes after the People’s Bank of China cut lending rates this week in an attempt to boost its flagging economy.

Conclusion

As we navigate through the rest of 2023, it’s clear that the global forex market remains dynamic and full of uncertainties. Central banks worldwide continue to adjust their monetary policies in response to domestic and global economic conditions. These decisions will undoubtedly impact various currencies in different ways, creating winners and losers along the way. Investors and market watchers alike should keep a close eye on these developments to stay ahead in this complex and fascinating market.

 

FAQs

Why did the US dollar rebound?

The U.S. dollar rebounded due to a forecast of at least two more rate hikes by the U.S. Federal Reserve, despite recent weak economic data.

Why is the Japanese yen under pressure?

The yen is under pressure because the Bank of Japan maintained its interest rates at very low levels, signaling a continuation of its accommodative stance.

What are the expectations from the European Central Bank regarding inflation?

The ECB expects another rate hike in July and has acknowledged that there is “ground to cover” to stave off high inflation.

Why is the Sterling climbing?

The rise in Sterling is due to expectations that the Bank of England will continue its trend of raising interest rates.

What’s happening with the Australian Dollar and the Chinese Yuan?

The Australian Dollar has seen a slight fall, while the Chinese Yuan remains near a six-month low after the People’s Bank of China cut lending rates.