The US Dollar (USD) has strengthened against all major currencies by the week’s end, with the Japanese Yen (JPY) being the most affected. This occurred despite the Bank of Japan’s decision to increase its interest rate to 0.75%.<\/p>\n
While a temporarily lower US Consumer Price Index (CPI) briefly impacted the USD, doubts about the quality of the inflation slowdown and market adjustments before the holiday period have maintained the USD’s robustness. The JPY fell over 1% against the USD, whereas other currencies experienced lesser declines.<\/p>\n
Continued rising food prices indicate ongoing affordability challenges. Some assumptions from the Bureau of Labor Statistics about October’s missing data contributed to the perceived price deceleration. Though initial market reactions to new data were reversed, speculation persists that the Federal Reserve may consider easier policies based on CPI data.<\/p>\n
The Dollar Index (DXY) rose from a low post-CPI, indicating potential resistance near 98.75, with possible gains into the new year. Nevertheless, some view remains that the DXY might move towards further declines and new lows in the coming weeks.<\/p>\n
The dollar is showing resilience as we head into the holiday period, despite a softer-than-expected CPI report yesterday which showed headline inflation easing to 2.8%. However, core inflation measures remain sticky, keeping the market on edge about the Federal Reserve’s next move. This uncertainty suggests that using options to define risk on USD positions could be prudent.<\/p>\n
We have seen thin holiday markets cause sharp, unexpected moves in the past, such as the currency flash crash back in January of 2019. With liquidity expected to dry up over the next two weeks, buying short-dated, out-of-the-money options on major pairs like EUR\/USD offers a low-cost way to protect against a sudden gap when markets reopen in the new year. This is a classic hedge against volatility in quiet markets.<\/p>\n
The Japanese Yen is the main underperformer, with USD\/JPY pushing above 162 even after the Bank of Japan raised its interest rate to 0.75% for the first time since 1995. The rate differential is still massive, with the US Fed funds rate holding at 3.75%, which fuels the carry trade and weighs on the yen. Derivative traders might look at selling JPY call options, betting that the yen is unlikely to strengthen significantly in the near term.<\/p>\n
While the Dollar Index (DXY) is showing some strength near the 98.75 resistance level, we feel this is likely due to pre-holiday position adjustments rather than a fundamental shift. We still believe the greater risk for the dollar in the coming weeks is to the downside. Buying DXY put options that expire in late January could be a strategic way to position for this expected weakness.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" USD strengthens broadly; JPY drops over 1% despite rate hike; CPI doubts sustain Dollar’s robust performance.<\/p>\n","protected":false},"author":62,"featured_media":16960,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-37362","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/37362","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/comments?post=37362"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/posts\/37362\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/media\/16960"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/media?parent=37362"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/categories?post=37362"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-asia\/wp-json\/wp\/v2\/tags?post=37362"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}