Forex markets are full of volatility in the third week of March 2024.

Most of the attention by forex traders was on the Bank of Japan as well as the US Federal Reserve.

This article by Finxo Capital takes a look at Forex trends affecting the markets today.

Forex markets: Bank of Japan tanks the Yen

On March 19, the yen plunged after the Bank of Japan announced, as expected, that it would end its negative interest rate policy.

The move is also expected to bolster the dollar ahead of the Federal Reserve’s latest outlook on interest rates.

The move was seen as a major swing away from the volatile period into which Japan has been moving.

It ends roughly eight years of sub-zero rates and other unorthodox economic moves designed to rescue the nation’s progressed economy.

Many investors had anticipated this move since the start of 2024.

Forex markets: Yen in focus

The yen decreased as much as 1%, crossing 150 against the US dollar. It settled at roughly 1.02% lower at 150.66 versus the dollar.

The sharp decline also brought the Japanese currency’s fall against the euro to 0.8% lower, at 163.48 – just short of its lowest level in three weeks.

The day after Hiro Kato’s resignation, the Bank of Japan increased its overnight interest rate for the first time in 17 years, and said it would keep the overnight call rate between zero and 0.1% for some time.

The yen once again came under pressure from massive interest rate differentials with the US.

Forex markets: US Federal Reserve

Against this backdrop, all eyes are on tomorrow’s US Federal Reserve policy announcement.

Anticipation is high that the Fed will keep benchmark interest rates between 5.25% and 5.50%.

Traders are keen to see what signals the determinedly upbeat Fed chairman, Alaskan Ben Bernanke pushes the course of monetary policy in the future.

Forex markets: US Dollar hits two-week high

The dollar hit a two-week high after stronger-than-expected US economic data pointed to sustained inflation, even as expectations increased that the Federal Reserve would start reducing support for the economy in 2024.

The Reserve Bank of Australia left rates unchanged but eased its point towards more modest rate increases after next month’s meeting, pressuring both the Aussie and the Kiwis.

Forex markets: Euro drops, Bitcoin tumbles

Meanwhile, a broadly stronger dollar pulled the euro and sterling to two-week lows. In cryptocurrencies, bitcoin tumbled 7%, falling from recent highs as profit-taking emerged.

At the time of writing on March 19, Bitcoin’s price was $62,468.

On March 19, the British pound slumped against the dollar and the euro, but rose to its highest level against the yen since 1998 after the Bank of Japan ended more than eight years of negative interest rates.

Forex markets: Sterling drops,

After early gains, the sterling fell by 0.45% to $1.2672 against the dollar and euro gained 0.1% on the pound to 85.54 pence.

Against the yen, the pound jumped 0.5% to 190.70, approaching its eight and a half-year peak of 191.32 struck on 26 February.

Forex markets: BOJ interest rates

Because interest rates remain near zero, the BOJ said it remains committed to stimulus measures – even after ending negative rates.

But, higher-yielding currencies, including the pound moved higher, benefiting from the BOJ’s decision.

The sell-off in the yen also spread to other lower-yielding currencies.

Forex markets: Pound up 18%

Over the past year, the pound has risen almost 18% against the yen, more than the euro’s rise of 15% or the New Zealand dollar’s 10%, despite being the currency in the G10 with the highest interest rates.

Having held its official interest rate – the Bank Rate – at a record low of 0.5% since March 2009, the Bank of England is widely expected to stick with the status quo when it announces its latest decision on March 21.

Even so, investors will be poring over the central bank’s accompanying statement for any hints of potential changes in monetary policy.

Forex markets: UK inflation on traders’ minds

Meanwhile, the UK is set to see inflation cool further when this month’s data is published on Wednesday.

Economists are forecasting a 3.5% rise in the consumer price index, down from 4% in January, while the core rate is expected to slow to 4.6% from 5.1%.

The consensus CPI figure could maintain the Bank of England’s neutral stance. A couple of rate cuts are expected by the end of the year from the Bank of England, with a third still on the cards.

Forex markets: Fed & Euro Rate cuts

Likewise, the Federal Reserve and the European Central Bank are projected to make three rate cuts in 2024, and the pound might well benefit from being above both the dollar and the euro.

This year saw the pound attract a record inflow of buying interest, with the net long position against the dollar standing at $5.632 billion as of last March data, by far the highest since records began in 1999.

Forex markets: Markets increase

This amounted to a 76% increase on the September net long position, illustrating just how much investors had piled on the pound in anticipation of it appreciating.

The Swiss National Bank (SNB) reported last Tuesday that it had disposed of 132.9 billion Swiss francs (chf) of foreign currency in 2022, an increase on a quarterly basis from the 107.4 billion chf the bank had shed in the third quarter.

As the Bank had started selling off a massive foreign currency mountain in 2022, with some CHF 120 billion melted down out of foreign reserves even in the first quarter, this latest figure represented an intensification of the SNB’s use of the Swiss franc as a shield against imported inflation.

Forex markets: SNB making waves

The SNB has remained in this intervention mode since – it’s enabled the country to keep the rate of inflation within a targeted range of between 0-2% for the past nine months.

The SNB says the sale of foreign currencies led to an immediate and significant appreciation of the currency and one that is ‘roughly oriented to the inflation differential vis-à-vis the trading partners’.

Since then, its action has helped to avoid a decline in the real value of the Swiss franc and is also helping to make conditions more restrictive.

By the end of 2023, inflation was crashing.

Forex markets: SNB achieving its targets

Shortly after achieving its targets, the SNB said it planned to no longer actively sell foreign currencies. The central bank is to release its next monetary policy decisions on Thursday.

Forex markets: Canadian bank data moves traders

After domestic inflation data came in lighter than anticipated, the Canadian dollar fell to a three-month low against the US dollar on Tuesday, fanning speculation the Bank of Canada could soon start cutting interest rates.

The loonie fell 0.5%, trading at 1.36 to the U.S. dollar, or 73.53 US cents, after hitting its weakest level of the day since December 12 at 1.3609.

Canada’s inflation rate for February decelerated unpredictably to 2.8%. Core inflation metrics fell to fresh 23-month troughs.

In the wake of that data release, what was about a 50% chance of the Bank of Canada cutting rates by June has jumped to 75%.

Investors also fear the Fed’s economic forecasts due on March 19, which could signal fewer rate cuts and a later start to the policy easing cycle.

Forex markets: Bonds & Global Interest rate moves

“In response to the stronger-than-expected inflation data, yields across the entire maturity spectrum of Canadian government bonds fell,” the Bank of Canada noted.

The yield on the 2-year bond sank 14.8 basis points to 4.151%, and the yield on the 10-year bond fell by 10.1 basis point to 3.496%.

Forex markets: Interests moving markets

Global interest-rate moves are starting to accelerate.

Japan, which had been out of sync with other developed nations as they increased borrowing costs since late 2021, finally eased away from its decades-long, easy policy stance.

Meanwhile, several of the world’s major central banks appear to be nearing victory in their battle against inflation.

Major rate-setting meetings this week in the United States, Britain, Switzerland and Norway could hint toward potential rate cuts.

Forex markets: Major Banks Stance on Interest Rates

Here’s a summary of the stance of major central banks:

USA: Fed rate-cut expectations are being trimmed as aggressive central bank rhetoric is further complicated by inflation beating market expectations.

Markets are forecasting around 75 basis points of cuts this year, compared with 150 forecast at the beginning of this year, with the first move coming in June.

Fed policy rates have been at 5.25% to 5.5% since July 2023.

NEW ZEALAND: Interest rates are at a 15-year high of 5.5% and the Reserve Bank of New Zealand says a ‘prolonged restrictive monetary policy stance’ is required.

However, the next update of economic forecasts could affect the Reserve Bank’s next policy decision in April, especially with warnings that growth may be much slower as high rates take a toll on the economy.

UK: Closely following the Fed and the ECB, rates are expected to be hiked after the Bank of England’s move, but later.

Higher-than-expected inflation could push the rate hike (currently slated for August) earlier, but a 4-6% slowdown in wage growth could lead to an earlier cut.

Canada: The Bank of Canada is expected to keep its key overnight rate at one of its highest rates in decades on April 10. Markets are priced for 60 basis points of cuts starting in July this year.

Euro Zone: While still keeping borrowing costs at record highs, the ECB has edged towards the prospect of further cuts, citing that inflation is easing more quickly than it first thought.

Market pricing is factoring in 84 basis points of cuts this year, while there is now a 57% likelihood that the first cut will come next month in June.

NORWAY: Norway’s central bank is likely to put off more rate cuts Their February inflation came in below expectations, but the Norges Bank’s guidance for the meeting on March 21 is unchanged, with the overnight deposit rate to stay at 4.50% ‘for some time’.

Australia: The Reserve Bank of Australia left its rate at 4.35%, which is the highest it has been for 12 years, but took out the warnings of further increases that it has made for several meetings in a row.

A rate cut next month is all but certain.

Sweden: The Riksbank held its key rate at 4% and hinted that the schedule for cutting rates could be brought forward if more inflation data were to disappoint; the next decision is due on 26 March, but markets are braced for ease in May or June.

Switzerland: Swiss inflation dropped to its weakest in nearly two and a half years, boosting the chances of a Swiss National Bank rate cut with markets penciling in the first cut for June.

Japan: The era of negative interest rates in Japan has ended: the Bank of Japan lifted rates to a range of 0-0.1%, scrapping yield curve control in the process, as inflation has surpassed its 2% target range for more than a year.

It’s a sign that Japan is well on its way to regaining growth.