This week, the foreign exchange market experienced significant fluctuations, with the dollar, yen, pound, euro, and Canadian dollar showing varied trends. The dollar declined for four consecutive weeks due to easing inflation, while the yen surged strongly, boosted by political changes in Japan. Simultaneously, the pound, euro, and Canadian dollar were each influenced by different economic data and events. Below is a brief analysis of the performance of the major currencies this week.
Dollar Declines for Four Consecutive Weeks as Inflation Pressure Eases
Recently, the dollar has shown a weakening trend, with the dollar index falling by about 0.2% this week, marking a decline for four consecutive weeks. The latest data shows that the US Personal Consumption Expenditures (PCE) price index rose by 2.2% year-on-year in August, lower than July's 2.5%, indicating easing inflation pressure. Month-on-month data met expectations, with a 0.1% increase in August PCE. Although consumer spending in August increased by only 0.2%, slightly below expectations, it still indicates certain economic resilience. The market generally believes that the likelihood of a rate cut by the Federal Reserve in November has increased, with the CME's FedWatch tool raising the probability of a 25-basis-point rate cut to 56.7%. Analysts suggest that the dollar may continue to be pressured in the short term. The dollar index fell to 100.15, the lowest level in nearly two months, indicating rising market attention to the Fed's policy direction.
Yen Rebound: Political Situation Provides Boost
The yen performed prominently this week, with the exchange rate against the dollar significantly rising to 142.12. The Liberal Democratic Party leadership election results in Japan showed that Shigeru Ishiba narrowly won, and his policy stance is seen by the market as more hawkish, particularly his support for the Bank of Japan's interest rate hike policy. This news broke the market's expectations of a weaker yen, driving its rebound. Previously, Sanae Takaichi was widely expected to win the leadership election due to her opposition to further rate hikes, which intensified expectations of a weaker yen. However, Ishiba’s victory reversed this trend, leading to a strong rise in the yen.
Euro Shows Minor Fluctuations, Policy Expectations in Focus
The euro slightly declined against the dollar this week to 1.116, showing a mild weakening trend overall. At the same time, the euro fell against the yen to 158.67. In Europe, inflation data from France and Spain came in lower than expected, significantly increasing the market's expectation of a rate cut by the European Central Bank in October, with the expected probability exceeding 90%. Although the euro has been relatively stable recently, the direction of monetary policy remains a core focus of the market, which may continue to impact the euro's future trend.
Pound's Rise Pauses, Outlook Remains Positive
The pound slightly fell against the dollar this week to 1.3375, but its cumulative gain still reached 0.4%, continuing last week's upward trend. The pound's relative strength is mainly due to robust economic data from the UK, especially in consumer spending and the labor market. Some market participants expect that as long as the Bank of England does not explicitly loosen monetary policy, the pound's upward momentum is likely to continue.
Canadian Dollar Fluctuates with Oil Prices, Lacks Clear Direction
The Canadian dollar showed significant fluctuations this week, mainly influenced by oil price volatility. Although an overall rise in oil prices provided support for the Canadian dollar, mixed views on the policy outlook of the Bank of Canada resulted in an unstable Canadian dollar trend.
Market Outlook: Policy Directions and Data to Dominate Future Trends
This week's foreign exchange market fluctuations were driven by inflation data, political events, and central bank policy expectations, with the dollar's continued decline and the yen's rebound being the focus. In the coming weeks, global central bank policy directions and macroeconomic data will continue to dictate market trends. Most analysts predict that the dollar will maintain its current weakness, while political changes in Japan may provide ongoing support for the yen. The pound and euro will be driven by their respective monetary policy expectations.
