Review on Major USD Forex Pairs and Forward Look
Major currency pairs have performed differently in the first half of 2024 for several reasons. However, the common catalyst has been the US dollar. This article will examine these trends and the significant economic and policy changes that caused these moves.
Stablecoin prices can be influenced by various factors, with the market trend of the underlying fiat currency being a critical consideration. Our blog tracks and updates major currency price movements while delving into the policies and economic factors that propel them. Follow us on @GMOTrust to stay updated.
Dollar’s Performance: A Mid-Year Overview
The US dollar index rose in the first half of 2024, ending the period higher. The image above shows that the price closed near its highs, indicating solid bullish momentum.
Key Shifts of US Economy and Fed Policy
In the first half, several economic changes, including inflation and employment figures, affected the US dollar. These major reports significantly impacted the outlook for Fed rate cuts, which drove the dollar.
As seen in the image above, there was a sharp reversal in the trend when the year began. Previously, the dollar had been on a solid bearish trend as traders expected the Fed to start cutting rates in March. Inflation towards the end of 2023 had shown a clear downtrend, allowing policymakers to assume a dovish tone.
However, this all changed at the start of 2024. Notably, in the first quarter, all three inflation reports beat forecasts. Consequently, the outlook for Fed rate cuts sharply reversed. As investors pushed back the timing of the first rate cut, the dollar soared. The Fed decided to hold high interest rates in all its meetings in this period.
At the same time, the labor market remained robust, indicating high demand. The US economy was generating many jobs, which also put policymakers on high alert.
However, economic figures shifted in the second quarter. Inflation resumed its downtrend, and the labor market started showing weakness. Ideally, this should have reversed the dollar’s rally. However, policymakers maintained caution and projected just one rate cut in December. Therefore, although inflation was easing, the dollar kept climbing on hawkish Fed comments.
Performance of Major Forex Pairs
The dollar’s rally in the first half affected the euro, pound, and yen. However, other domestic economic and policy changes made all these moves different.
EUR/USD
EUR/USD fell in the first half of 2024 because a strong dollar weighed on the euro. However, an element of policy divergence also pushed the euro lower. Notably, while inflation in the US remained stubborn, Eurozone inflation continued easing when the year began.
As a result, ECB policymakers were more dovish and called for the first rate cut in June. When the time came, the ECB became the second major central bank to lower interest rates. Furthermore, economists are projecting two more cuts in the second half.
GBP/USD
The pound performed better than the euro against the dollar. Unlike the euro, the pound had an edge against most currencies because Bank of England policymakers maintained a hawkish stance through most of the first quarter. They were not expecting to start lowering borrowing costs early in the year because inflation was still high.
By then, it was clear that the Bank of England would be among the last major central banks to cut rates. Notably, although inflation continued declining in H1 and reached the 2% target, services inflation has remained high at 5.7%. Consequently, chances of a BoE rate cut in August have dropped below 50%.
USD/JPY
Meanwhile, the yen was the weakest performer against the dollar in the first half of 2024. USD/JPY made a steep, bullish move driven by the dollar’s rally and a wide interest rate gap between Japan and the US. In March, the Bank of Japan made a historic move by hiking interest rates. However, even this was not enough to stem yen declines. Some investors were disappointed after the meeting because it became clear that the new hiking cycle would be slow and gradual. Therefore, a wide interest rate gap will remain for an extended period.
A Closer Look at USD/JPY
To better understand the USD/JPY trend, we must also look at Japan’s economic and policy changes in detail.
Japan’s Economic and Policy Changes
In the first quarter of the year, the yen fell as the dollar rallied. On the economic front, Japan was slowly recovering, which gave Bank of Japan policymakers the confidence to start signaling a rate hike. At the same time, inflation was accelerating, boosting bets for a rate hike.
When the time came at the March meeting, the Bank of Japan hiked rates. However, the impact on the yen was unexpected as it tumbled further. This was mainly due to disappointment that the hiking cycle would be slow and gradual. Investors had expected a more aggressive cycle that would reduce the rate gap between Japan and the US.
After that, the yen continued to tumble, forcing the Bank of Japan to intervene at the end of April and the start of May. The impact of these interventions was temporary, and the decline of the yen resumed towards the end of the second quarter.
Factors Behind the Rise and the Fall of USD/JPY
From the above, we can see that USD/JPY rose in the first half of the year for several reasons, including a decline in Fed rate cut bets, which boosted the dollar. At the same time, although the BoJ hiked rates, investors were disappointed with the outlook of a slow pace. Therefore, the Fed delayed cuts while the BoJ delayed hikes, keeping the gap in rates between Japan and the US wide.
Although the falls in USD/JPY were few and temporary, they left a mark. The main reason for the fall was the Bank of Japan’s interventions. Japan’s central bank tried to support their currency by selling the dollar and buying the yen.
Looking Ahead: USD/JPY Prospects for the Second Half
There are many economic and policy expectations for the second half of 2024 that will drive USD/JPY. Investors expect the Fed to start cutting interest rates in September on the US side. At the same time, data has shown weakness in the US economy that could continue in H2. A weak economy and looming rate cuts will likely weigh on the dollar, pushing USD/JPY lower.
Meanwhile, although consumption could remain weak in Japan, the Bank of Japan will likely reduce its bond purchases and signal the next rate hike. This would strengthen the yen, further pushing USD/JPY lower.
Additionally, the upcoming U.S. presidential election introduces another layer of uncertainty to the USD/JPY. Some analysts are cautiously optimistic about the yen’s potential performance, suggesting that election results could lead to expectations of major policy shifts, possibly reversing recent trends.
On the technical side, the USD/JPY price has broken below its bullish trendline, indicating a bearish sentiment shift. This comes after the price made a bearish engulfing candle near the 162.01 resistance level. At the same time, the price now trades below the 30-SMA with the RSI below 50, supporting a bearish bias. A continuation of this new trend would see the price revisit support levels like 155.01 and 146.56.
Digital Forex Trading with Stablecoins
GYEN, the first regulated JPY stablecoin, and ZUSD, a trusted USD stablecoin issued by GMO Trust, are now available on leading exchanges.
Find trending pairs of GYEN and ZUSD here:
Coinbase: GYEN/USD
Mercado Bitcoin: BRL/GYEN
About GMO-Z.com Trust Company
GMO Trust connects traditional finance and blockchain technology for everyone. We issue GYEN, the world’s first regulated Japanese Yen stablecoin, and ZUSD, our trusted U.S. Dollar stablecoin. Visit our website to learn more.
Disclaimer
This content is not financial advice, and it is not a recommendation to buy or sell any financial instruments, FX trading, cryptocurrency, or engage in any trading or other activities. You must not rely on this content for any
financial decisions. Acquiring, trading, and otherwise transacting with financial instruments or cryptocurrency involves significant risks.
We strongly advise our readers to conduct their own independent research before engaging in any such activities. GMO Trust does not guarantee or imply that any cryptocurrency or activity described in this content is available or legal in any specific reader’s location. It is the reader’s responsibility to know the applicable laws in their country.
