Yesterday, the FX market saw a shift as EUR/USD broke lower from its recent flat trading pattern. The US Dollar (USD) has regained its losses from the softer June CPI report, with currencies like Japanese Yen (JPY), Swiss CHF, and GBP emerging as winners, according to ING’s FX strategist Francesco Pesole.
Low FX Volatility Environment and Carry Trades
Despite some positive news in certain currencies, the FX market continues to be influenced by the “Trump trade.” Scandinavian and Antipodean currencies have weakened against the dollar since the assassination attempt on Donald Trump, indicating a risk adjustment rather than a long-term trend. The Federal Reserve’s stance is negative for the USD, which could limit dollar gains in the short term.
Recent events, such as a successful two-year Treasury auction and a potential BoC rate cut, are further shaping market expectations. The focus remains on domestic factors, with high-yielding currencies like MXN and ZAR facing pressure while the JPY continues to perform well.
Analysis and Implications for Your Finances
In summary, the recent movements in the FX market highlight the ongoing influence of the “Trump trade” and the impact of domestic and global events on currency valuations. For investors, it is crucial to stay informed about these developments and consider their implications for investment decisions.
The current low FX volatility environment may not be conducive to carry trades, and certain high-yielding currencies are facing selling pressure. Understanding these dynamics can help investors navigate the market and make informed choices to protect and grow their wealth.