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May global FX outlook

Convera’s Global Economic Outlook provides the in-depth regional currency analysis you need to navigate commercial payments with confidence.

FX volatility often hides in the shadows, only to emerge when least expected. This was the case in April 2024, as tranquility gave way to disorder, shaking fx markets worldwide and causing swings in major currencies. The sudden shift underscores the inherent complexities of foreign exchange trading, where geopolitical tensions and policy divergences significantly impact market dynamics.

Tensions in the Middle East and concerns over sustained US interest rates sent the VIX (CBOE Volatility Index) soaring past 20.0 for the first time since October 2023.  This resurgence in volatility indicates potential upheaval across the foreign exchange market, stock market, and other financial markets.

Diverging policies from central banks, coupled with external shocks like geopolitical strife, threaten further turbulence in global markets.  Across the pond, the European Central Bank eyes potential rate cuts amidst sluggish growth, in stark contrast to the resolute stance of the Federal Reserve. Meanwhile, Asian currencies struggle against a resurgent US dollar, amplifying pressures on regional economies.

Is your business prepared to navigate this challenging currency market?

Convera’s Global Economic Outlook for May discusses potential pathways through this current bout of volatility. Our Market Insights team elaborates on the forces shaping this volatility and highlights potential pathways to positive business outcomes during uncertain times including how to manage foreign exchange risk.

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US dollar surprises on the foreign exchange market amid rising inflation

In the dynamic world of FX trading, the USD has made headlines with significant shifts and surprises keeping market participants, including top foreign exchange dealers, on their toes. These dealers, primarily large commercial banks with worldwide operations, play a crucial role in the market’s response to the US dollar’s volatility.

April proved to be a particularly eventful month, with the USD/MXN pair emerging as the leader in volatility, experiencing a remarkable 12% deviation. A flash crash on April 19, triggered by rising tensions in the Middle East, sent shockwaves through the market, causing the peso to plummet more than 5% against the US dollar.

Following closely behind, USD/JPY exhibited a deviation of over 6%, with April 29 marking its second largest daily trading range since 2022. The intervention of the Bank of Japan to bolster the JPY added an additional layer of complexity to the mix.

Canada’s dollar fluctuates in currency trading against USD

Additionally, the Australian and New Zealand dollars faced intensified pressure amid recalibrations of the Fed’s interest rate trajectory and mounting geopolitical tensions. The exchange rate of AUD/USD and NZD/USD was significantly influenced by these factors, as shifts in the Fed’s interest rate decisions and geopolitical tensions directly impact the exchange rates in foreign exchange markets. Both AUD/USD and NZD/USD hit lows unseen in 2024 before clawing back some ground in foreign exchange markets.

As we navigate through these turbulent times, staying informed and agile in response to forex market shifts remains paramount when it comes to currency conversion.

British pound sees wild swings

The FX market can feel like a rollercoaster, and recent events have certainly been no exception. In the context of currency pairs, the GBP/JPY and GBP/USD pairs are prime examples of how the British pound interacts with its counter currencies. In the GBP/JPY pair, the Japanese yen serves as the counter currency, while in the GBP/USD pair, the US dollar takes on this role. This means that when trading these pairs, the value of the pound is measured against the value of the yen and the dollar, respectively.

Pound/Yen experiences dramatic spike

The GBP/JPY pair surged to ¥200.00, hitting levels not seen since 2008, as investors eagerly shed the low-yielding JPY as the counter currency. This dramatic spike, exceeding 3.5% in a single day, marked a rare occurrence, akin to a six sigma event, possibly spurred by Japanese officials intervening in the market.

Meanwhile, the GBP/USD pair, with the US dollar acting as the counter currency, experienced its most significant monthly trading range since November, swinging over 3% throughout April. Factors such as tightening UK-US yield spreads and escalating geopolitical tensions were an important factor in this fluctuation in currency prices. Despite hitting a five-month low at $1.23, the pair managed to claw its way back above $1.25 by month-end.

British pound down against euro amid exchange rate fluctuations

In contrast, the GBP/EUR pair, known for its stability, faced pressure as yield spreads wavered, causing it to dip to a three-month low. However, finding support at its 100-month moving average near €1.16 suggests potential for a rebound. With volatility on the rise, traders are eyeing the €1.17 mark as a key barrier, wondering if a breakout is on the horizon. As currency markets continue to navigate through these fluctuations, staying informed and adaptable remains paramount for traders seeking success.

EUR faces mixed fortunes on the forex market

The euro took center stage in April, facing a whirlwind of shifting fortunes against its peers. Amidst a backdrop of evolving central bank policies and geopolitical tensions, the euro exhibited a nuanced performance, offering both highs and lows for financial market observers.

The European Central Bank (ECB) sent a clear message, hinting at potential rate cuts slated for June. This announcement, coupled with a flurry of market activity, saw the euro gaining ground against only 43% of its peers, a notable decrease from the previous month’s 59%.

Beyond speculative trading, the euro plays a crucial role in currency exchange, facilitating international payments and exchanges for private individuals and companies, distinct from its speculative use in the forex market.

Euro and Japanese yen

EUR/JPY soared to its highest level since September 1992, touching ¥171.56, before retreating amidst suspicions of Japanese intervention during holiday-thinned liquidity periods. Meanwhile, EUR/CHF breached the CHF0.9800 mark, marking an 11-month high, fueled by waning demand for safe-haven assets amidst geopolitical calm in the Middle East.

Euro and US dollar

However, the euro faced headwinds against the US dollar, as a sharp reassessment of Fed rate cut expectations sent the EUR/USD pair tumbling to a fresh 2024 low of $1.0601. Hedge funds and investment management firms, as key participants in the foreign exchange market, engage in trading the euro against the US dollar, utilizing strategies to navigate its volatility for business transactions, hedging against market risk, and managing large accounts for clients like pension funds with the aim of generating profits and limiting risk. The growing policy divergence between the Fed and the ECB has injected heightened volatility into the market, with options markets anticipating further turbulence in the coming months.

As we navigate the intricate web of global economic dynamics, the euro remains a focal point of intrigue, its trajectory influenced by a myriad of factors spanning central bank policies to geopolitical developments. In this ever-evolving landscape, staying attuned to market signals and policy shifts is paramount for informed decision-making in the realm of currency trading.

Japanese yen at the forefront of Asia Pacific currency trends

April proved to be a month of dynamic shifts in the APAC currency landscape, with the JPY taking center stage in the volatility dance. In this context, various transactions in the APAC region involve exchanging currencies, including the Japanese yen and other currencies, through different types of foreign exchange transactions like spot and forward markets. Following the Bank of Japan’s decision, the yen experienced a notable dip, only to regain its footing with support from the Ministry of Finance. This journey was reflected in the AUD/JPY pair, which showcased a remarkable 7.3% range over the past 30 days.

Aussie/Kiwi hit USD turbulence

Meanwhile, the AUD/USD experienced its own rollercoaster ride, spurred by a surprisingly robust Australian inflation figure that tempered market expectations for RBA rate cuts in 2024. The NZD/USD also faced heightened volatility, tumbling to six-month lows amidst uncertain market conditions.

Interestingly, amidst this turbulence, the AUD/NZD pair remained relatively subdued, underscoring a stable trajectory despite prevailing sentiments suggesting a greater likelihood of rate cuts by the Reserve Bank of New Zealand compared to its Australian counterpart.

Conversely, the USD/CNY exhibited a different tale, characterized by its lowest levels of volatility as the People’s Bank of China intervened to counter USD/CNY gains.

*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.

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