Markets are on edge as we head into Wednesday, November 12th, with all eyes on the Federal Reserve and a crucial vote in the US House of Representatives. The fate of the US Dollar hangs in the balance, and the financial world is watching with bated breath.
The Dollar’s Struggle
After a challenging Tuesday, the US Dollar (USD) is seeking stability. With no major economic data releases to guide investors, the market’s focus shifts to Fed officials’ comments and the House’s vote on the funding bill to end the government shutdown.
USD Price Movement This Week
The USD has been on a rollercoaster ride this week. Our table below highlights the percentage changes of the USD against major currencies. Notably, the USD has weakened the most against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF |
| — | — | — | — | — | — | — | — |
| -0.23% | 0.02% | 0.40% | -0.35% | -0.74% | -0.63% | -0.71% |
| 0.23% | 0.26% | 0.70% | -0.15% | -0.54% | -0.42% | -0.51% |
| -0.02% | -0.26% | 0.51% | -0.38% | -0.77% | -0.65% | -0.74% |
| -0.40% | -0.70% | -0.51% | -0.81% | -1.20% | -1.08% | -1.21% |
| 0.35% | 0.15% | 0.38% | 0.81% | -0.31% | -0.29% | -0.43% |
| 0.74% | 0.54% | 0.77% | 1.20% | 0.31% | 0.11% | 0.03% |
| 0.63% | 0.42% | 0.65% | 1.08% | 0.29% | -0.11% | -0.09% |
| 0.71% | 0.51% | 0.74% | 1.21% | 0.43% | -0.03% | 0.09% |
The heat map provides a visual representation of these currency fluctuations.
On Tuesday, the ADP’s weekly data revealed a concerning trend: private employers shed an average of 11,250 jobs weekly for the four weeks ending October 25th. This news weighed heavily on the USD during American trading hours, pushing the USD Index into negative territory. However, as Wednesday’s European morning session began, the USD Index steadied around 99.50. US stock index futures also gained between 0.2% and 0.5%, indicating a more optimistic market sentiment.
Currency Pair Insights
EUR/USD benefited from the USD’s broad weakness on Tuesday, briefly surpassing 1.1600. The pair consolidated early Wednesday, fluctuating slightly below this level.
GBP/USD, after dipping towards 1.3100 on disappointing labor market data in the European session on Tuesday, staged a rebound, recovering some of its daily losses. The pair struggled for momentum on Wednesday, trading near 1.3150.
Gold, following Monday’s rally, saw a quiet Tuesday, ending the day marginally higher. XAU/USD continued its sideways movement into Wednesday’s European session, holding comfortably above $4,100.
Japanese Prime Minister Sanae Takaichi’s comments on Wednesday highlighted Japan’s ongoing battle with deflation. USD/JPY continued its upward trajectory, trading above 154.50, its strongest level since February.
Fed Insights
The Federal Reserve (Fed) plays a pivotal role in shaping US monetary policy. With its dual mandate of achieving price stability and full employment, the Fed’s primary tool is adjusting interest rates. When inflation exceeds the Fed’s 2% target, it raises interest rates, attracting international investors and strengthening the USD. Conversely, when inflation falls below 2% or unemployment is high, the Fed may lower rates, impacting the Greenback negatively.
The Fed holds eight policy meetings annually, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes critical decisions. The FOMC comprises twelve Fed officials, including the Board of Governors, the New York Fed President, and four rotating regional Reserve Bank presidents.
In extreme circumstances, the Fed may employ Quantitative Easing (QE), a non-standard policy to increase credit flow in a troubled financial system. This was the Fed’s strategy during the 2008 Great Financial Crisis, involving printing Dollars to purchase high-grade bonds. QE typically weakens the USD.
Quantitative Tightening (QT) is the reverse process, where the Fed stops buying bonds and does not reinvest maturing bond principal, opting to purchase new bonds. This approach often strengthens the USD.
And here’s where it gets controversial: some argue that the Fed’s policies can have unintended consequences, sparking debates about the balance between economic stability and potential market manipulation.
As we await the Fed’s commentary and the House vote, the financial world holds its breath, knowing that these decisions could shape the future of the USD and global markets. What are your thoughts on the Fed’s role and its potential impact? Feel free to share your insights and join the discussion in the comments!