USDJPY pair at the lowest level since July 2023

The last week of trading on international markets maintains the direction taken in early December. Stock indices are gaining and the US dollar is losing sharply compared to other major currencies on the FX market. In this matter especially the Polish zloty and the Japanese yen stand out. Both currencies in relation to the USD reached this week the highest levels observed in many months and even years.

Clear weakness of the dollar

The continued weakness of the world's reserve currency, the US dollar, is dictated by law euphoric valuation of the first interest rate cuts in the US and around the world. In the case of the Fed, the central bank of the United States, the money market assumes with almost 73% probability that the first 25 bp of cuts will take place in March 2024. It is worth mentioning that at the beginning of December such a probability was "only" 21%.

This situation has a direct impact on the activation of stock exchange buyers who enthusiastically accept the expected easing of economic conditions, and all this has a negative impact on the dollar, which in the case of USD/JPY pairs is recorded at the lowest levels since July 2023, and in the case of USD/PLN, it is at the lowest levels since September 2021!

Changing the ultra-loose policy of the Bank of Japan?

The yen, which is subject to two parallel forces that oppose each other, receives media publicity. On the one hand, the weakness of the dollar supports the Japanese currency, which has also recorded the largest net inflow since September this year compared to the one compiled by International Monetary Fund basket of world reserve currencies.

Bank of Japan Governor Ueda said yesterday that the chances of getting out of negative rates in 2024 are 'non-zero', which raises hopes for a change in the ultra-loose policy of the Bank of Japan that has been maintained so far. On the other hand, Ueda also emphasized that he is in no hurry to change his current position, and historically, expectations for such changes have ended in failure. Time will tell whether the current wave of yen appreciation/dollar depreciation will be confirmed in the quotations in 2024. One thing is certain, however, next year will bring us very high volatility on international markets.

The best performers on the FX market before 10:00 are the Japanese yen and the Swiss franc. Antipodean currencies are experiencing significant declines today. The zloty is losing this morning. We currently pay PLN 3,9081 for the dollar, PLN 4,3377 for the euro, PLN 4,6509 for the franc, and PLN 4,9964 for the pound.

Source: Mateusz Czyżkowski, XTB