The forex market started the week with notable movements. The yen gains on Japan’s better-than-expected GDP data. Meanwhile, the Australian and New Zealand dollars remained stable ahead of key rate decisions. The U.S. dollar, on the other hand, weakened due to recent disappointing economic data, increasing expectations of more rate cuts by the Federal Reserve.
The yen strengthened by 0.27%, reaching 151.94 per dollar. This gain reversed earlier losses and was driven by Japan’s latest GDP report. The data showed that Japan’s economy expanded faster than expected in the fourth quarter. This fuels speculation that the Bank of Japan (BOJ) may implement further rate hikes this year. Traders are now pricing in approximately 35 basis points of rate hikes by December.
According to Marcel Thieliant, head of Asia-Pacific at Capital Economics, “Even though the jump in Q4 GDP wasn't broad-based, it supports our view that the Bank of Japan will tighten policy more aggressively this year than most anticipate.”
The U.S. dollar remains under pressure as investors react to weak U.S. retail sales data and a delay in Donald Trump’s reciprocal tariffs. Market participants are now reassessing the strength of the U.S. economy. Additionally, geopolitical concerns persist, with reports suggesting that talks aimed at resolving the Russia-Ukraine conflict may begin in Saudi Arabia this week. However, the list of participants remains uncertain.
The euro found support amid the dollar’s weakness, edging closer to the $1.05 level. It was last recorded at $1.0487, while the British pound held steady at $1.2582. The dollar index stood at 106.79 after experiencing a 1.2% decline last week.
Rodrigo Catril, a senior FX strategist at National Australia Bank, commented, “The dollar weakness... was a function of both ongoing optimism that maybe tariffs are not going to be as disruptive as originally thought. That, of course, remains to be seen, and the Ukraine story is still developing.”
The Australian dollar saw a slight increase of 0.07%, reaching $0.6357. The market now awaits the Reserve Bank of Australia’s (RBA) policy decision scheduled for Tuesday. Analysts expect the RBA to announce a quarter-point rate cut, marking its first reduction in over four years.
Similarly, the New Zealand dollar gained 0.03%, reaching $0.5734. The Reserve Bank of New Zealand (RBNZ) is set to reveal its policy decision on Wednesday, with markets anticipating a 50-basis point rate cut. This move aligns with the global trend of monetary easing among major central banks.
The forex market remains dynamic, influenced by economic data and geopolitical developments. The yen’s strength, the dollar’s weakness, and upcoming rate decisions in Australia and New Zealand will shape market movements in the coming days. Traders should stay informed and adjust their strategies accordingly.
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Yen gains on strong GDP data, while the Australian and New Zealand dollars hold steady ahead of rate decisions.
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