Dollar faces challenges; Yen holds steady amid light trading

The Dollar Index is down to ~101.43. The US Federal Reserve is expected to start cutting rates; however, a tentative date, or even a month for that matter, has not been shared by central banking authorities. What strengthens the belief is the fact that the inflation rate is well under control, inching closer to the determined rate of 2%.

In 2024, the chances of rate cuts will be higher. Analysts have also estimated that cuts may come as early as March 2024. The Fed will make the final decision, and a rate hike is becoming a remote possibility. The Japanese Yen continues its tour with a stagnant movement on the graph. It is dancing within the range of 140–145 at the moment.

The US Dollar is facing major challenges from its inflation. The number was 3.1% in November and 3.2% in October this year. An early attempt is to get it under 3% before trying for the actual rate. Next, the ongoing wars between Russia & Ukraine and Israel & Hamas are further impacting its trade across the globe. Not to forget, Houthis are gaining pace in the Red Sea, forcing companies to take a longer route for a higher price.

Factors affecting the US Dollar

The value of the US Dollar may pick up momentum later in 2024. Until then, the currency cannot avoid signs of struggle. For instance, an expected government change would fuel a policy shift. Joe Biden losing his next election will pave the way for another leader to take over and ensure that cuts are more aggressive.

• There is no end to any war that is going on at the moment. A loss in Afghanistan has created tensions in Asian markets, and the name of the US is deep in the soil. Market sentiments have taken note of that to review how situations will work out in the days to come.
• Inflation is now coming under control in the manner in which it was expected to. A fall from 6.45% in June to 3.14% in November remains noteworthy. But only to a limit at which rate hikes can be stopped. Investments are not precisely at their peak because of this.
• On top of that, the US Government Bond Yield is at 3.8%, down from 5.05% in the middle of October this year. The number is true for a 10-year bond, causing worry over improvements at the macro level.

The Japanese Yen has been comparatively stable for a couple of days. Most of it is credited to seamless liquidity and a stable political system. Also, there is a hint that the Bank of Japan may go easy on its monetary policies in 2024. Inflation is lowest at 2.3% for November, boasting lower risks than European nations.

The US Dollar and Japanese Yen are locked at 142.36. The last time Yen was above 145 was on December 6–7, 2023. Lower interest rates make it convenient to borrow the currency and, hence, historically attractive and economical.

Constant Dollar struggles are visible on the surface, which will cool down only in 2024. Opportunities in the current market are for technological advancements. The US would still want to work on balancing the trade deficit. It was recorded for 2022 at $70.3 billion. Exports were approximately $118.5 billion, and imports were $188.8 billion.

The risks around the US Dollar and Japanese Yen revolve around the same, with the US trying to bring balance to its trade with Japan. Plus, there is a rising demand to remove the US Dollar from the middle of bilateral trade between countries other than the US. That will affect the Dollar more, especially for US forex brokers. Yen holds steady movements on the graph until then, and the Greenback looks for support.

Conclusion

Moving forward, the Bank of Japan would aim to go easy on its monetary policy since inflation is well under control. The US has a similar sentiment, except it has a larger target to achieve in the next couple of months. The Japanese Yen could hold steady. The US Dollar would eventually find a way to cut rates.