This exercise is a short write-up describing what causes exchange rates to move, which begins on 10/16 (See Wednesday's 10/17 paper/on-line for Tuesday's closing prices) and ends on 10/24 (Tuesday's closing price in Wednesday paper) explaining the change in currencies over 5 periods, e.g., Tues. to Wed., (1 period).
November 1st. Graph the indirect exchange rates (foreign currency per U.S. dollar) for the Yen, Pound and Euro. Give an explanation of why each currency moved in the direction it did for the particular period e.g., the pound appreciated (increased in value •• less of the foreign currency to buy one dollar) relative to the dollar between October 1 and October 18 because the Federal Reserve Chairman lowered U.S. interest rates ones quarter of one percent, thereby reducing the attractiveness of U.S. bonds to foreigners.
In the stock market, the factors that influence the indirect foreign exchange include and are not limited to the monetary policy, trade policies and political news. In addition, economic performance in one country may influence the positioning of the other currency in the market.
Overall there was market turmoil experienced in the weeks October 17th to 24th. Due to this, the exchange rates fluctuated. Some of the factors that influenced the US exchange rate was the wage rate inflation expected in the country. Due to this the FED sought to stabilize the dollar though its effects would be to risk the financial markets. Some of the influencing factors include the elusivity of the Brexit deal as well as the trade war between the US and china. In addition, there have been rising borrowing costs in the country which threaten fiscal stability. In the overall market it is expected that the exchange rate will experience short lived bursts on momentum though a push by traders to cash out of the exposure to the risk posed by the dollar in the market(fxempire).
In terms of the GBP/USD< the changes experience are due to the increase in demand since the Bank of England is expected to raise interest rates in 2019. Due to this forecast, the traders are positioning themselves for a cash out in January. However, the GBP/USD continues to bleed lower due to the Brexit uncertainty. It therefore provides the bulls with a buying opportunity as the Pound can be purchased at a discount with the expectation of a rise into Christmas and the end of the year(Investing.com).
Other news which influenced the exchange rates was the announcement of the US GDP performance. There was news that the third quarter GDP increased at 3.5% as well as an increase in consumer spending. Due to this news the dollar became stronger compared to other currencies. Over the period the USD fluctuated in expectation of the US FOMC updates as well as the Eurozone CPI figures. The Eurozone economic news showed that there was worsening business sentiment across the Euro area due to the Italian budgetary concerns and trade tensions in the area. Further, the divergent monetary policies between the two continents contribute to a positive outlook towards the USD. The fed monetary policy revealed that they are on track for the four rates hike in the coming year which shows expectation of a stronger USD in the coming days. Further, the US market was also expecting a release of data from housing and building permits as well as crude oil inventory data. These factors contributed to an upward resistance of the USD against the EURO(Investing.com).
Market data retrieved from https://www.fxempire.com/forecasts/article/eur-usd-daily-price-forecast-eur-usd-takes-a-dovish-turn-ahead-of-us-fomc-update-532712
Market data retrieved from https://www.investing.com/currencies/eur-usd-historical-data
Market data retrieved from https://www.barchart.com/forex/quotes/%5EEURUSD/news
Market data retrieved from https://www.fxempire.com/markets/eur-usd/forecasts?page=3