FX Market Roundup: How Far will GBP/USD and USD/JPY Fall?

Daily FX Market Roundup 2.24.16

By Kathy Lien, Managing Director of FX Strategy for BK Asset Management

It has been an incredibly active day in the foreign exchange market with many major currencies experiencing big moves. The focus has been on the British pound, Japanese Yen and Canadian dollar as there was zero consistency in the performance of the greenback. The U.S. dollar strengthened versus the GBP, AUD and NZD but weakened against JPY, CAD and CHF. 

 

The latest economic reports show the U.S. recovery losing momentum but there are more pressing problems abroad. 

 

New home sales may have fallen more than expected and service sector activity contracted for the first time in 28 months according to Markit Economics but the impact on the dollar was limited by the data's influence on Fed policy. 

 

According to the latest comments from U.S. policymakers, the Fed is far more worried about market volatility than the direction of the economy. 

 

Most Fed Presidents still feel confident that the recovery will gain momentum but market developments tightened financial conditions, making it increasingly difficult for the Fed to justify raising interest rates next month. 

 

For the Fed to move forward with tightening it is not data but rather the markets that need to stabilize so don't expect much reaction to Thursday's jobless claims and durable goods reports.

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