In the wake of a historic election and a series of impactful Federal Reserve announcements, the financial markets appear to be catching their breath on Friday. Investors are assessing the implications of Donald Trump’s recent presidential victory and the Federal Reserve’s latest policy adjustments as they navigate the currency markets.
The Fed’s Move: A 25 Basis Points Rate Cut
The Federal Reserve held its policy meeting earlier this week, making a widely anticipated decision to lower the policy rate by 25 basis points, bringing it into the range of 4.5% to 4.75%. In its policy statement, the Fed emphasized that risks to the job market and inflation were “roughly in balance,” a reiteration of language seen in September’s statement. Fed Chairman Jerome Powell, in his post-meeting conference, refrained from signaling any definitive policy action for December, noting that the results of the recent presidential election would not impact near-term monetary policy.
Currency Market Reactions
Following the rate cut announcement, the US Dollar (USD) experienced heightened volatility. The USD Index rallied on Wednesday, only to lose 0.7% of its gains on Thursday, stabilizing around the 104.50 level in early European trading on Friday. US stock index futures remain relatively flat, while the benchmark 10-year US Treasury bond yield is fluctuating above 4.3%, reflecting investor caution amid the evolving economic landscape.
Currency Performances: USD and Major Pairs
This week, the USD has shown mixed performance against major currencies, holding as the strongest against the Swiss Franc while showing losses against others, particularly the Australian and New Zealand Dollars. Here is a snapshot of percentage changes for the USD against key currencies:
In Europe, EUR/USD staged a comeback on Thursday, trading briefly in positive territory. The pair, however, has struggled to hold above the 1.0800 mark and was last seen trading around 1.0770. Meanwhile, USD/JPY reached a multi-month high above 154.50 midweek but saw a sharp correction, dropping by more than 1% on Thursday.
Bank of England Cuts Rates, Adjusts Inflation Projections
The Bank of England (BoE) followed the Fed’s lead, announcing its own rate cut of 25 basis points, bringing its policy rate to 4.75%. This decision comes as part of an effort to manage inflation and support the British economy amidst fiscal adjustments. The BoE also revised its forecast for inflation, now expecting the Consumer Price Index (CPI) to hit 2.7% in one year’s time, up from August’s 2.4% projection. Notably, the new fiscal budget is anticipated to add just under 0.5 percentage points to peak inflation between mid-2026 and early 2027. GBP/USD responded to the BoE’s policy shift by gaining bullish momentum, rising by 0.8% on Thursday, but remains range-bound below the 1.3000 level in the early European session.
North American Update: USD/CAD and Upcoming Data
USD/CAD has been fluctuating as well, edging closer to the 1.3900 mark following a 0.5% drop on Thursday. Canadian market watchers are awaiting October’s labor market data, set to be released by Statistics Canada later on Friday, which could further influence the CAD’s position against the USD.
Outlook for TotaFX Capital Traders
As the markets absorb these major economic events, currency traders are urged to watch for potential swings as fresh data is released, including the University of Michigan’s preliminary Consumer Sentiment Index for November in the United States. This report could offer insights into consumer confidence and spending expectations, which remain key factors for USD performance.
For our clients at TotaFX Capital, this week’s developments underline the importance of staying informed and adaptable in the forex market. With central banks actively adjusting policy and geopolitical dynamics playing a larger-than-usual role, trading decisions should be approached with a clear understanding of both technical signals and macroeconomic indicators.
TotaFX Capital is committed to providing our clients with timely insights and resources to navigate the complexities of the forex market. Stay tuned for more updates and trading insights to help you make informed decisions.
