To The Moon

Let's talk about what happened in the forex market last week and what to expect this week.

Last Week's Market Recap

Last week, the US dollar had a short correction but then shot up. It closed the week higher. Meanwhile, non - US currencies kept hitting new lows. On Friday, the latest non - farm data came out way better than expected. This made the market lower its hopes for the Federal Reserve to cut interest rates in 2025. And this could keep the US dollar strong in the short run.

The US dollar had its fifth straight week of gains. On Friday, it had a big daily jump. December's non - agricultural data showed the US created more jobs than we thought. This made people think the Fed will hold off on cutting rates as fast as they thought before. But, the Fed cares a lot about inflation data. So, this week's CPI data is super important.

The USD/JPY exchange rate has some basic support, but it's still bouncing around. The EUR/USD dropped to a more - than - two - year low and GBP/USD fell to a nine - month low. This is because the market has different expectations for the US and other big economies. People now think the Fed will only cut rates twice in 2025. But in Europe and the UK, because their economies have been bad for a while, their policies are expected to be more conservative. In fact, in December, three Bank of England members voted to cut rates, which made the market think there'll be faster rate cuts in 2025.

The pound's been really weak. The UK 10 - year Treasury Bond yield shot up to 4.839%, the highest since 2001. Last week, the pound dropped against all major currencies. This shows the market's lost a lot of confidence in the UK economy. The rising bond yields and falling exchange rate could make money flow out of the UK, starting a bad cycle. The UK economy might be in as much trouble as it was in 1976 when it needed a $3.9 billion IMF bailout because of a big fiscal deficit and low market confidence.

Futures Market Positions

According to the U.S. Commodity Futures Commission's report on December 31, 2024, last week, the net short position of the euro changed by 5,477 lots, the Australian dollar's by 2,952 lots, and the British pound's net long position changed by 170 lots. The net short position of the Japanese yen changed by 4,546 lots, the Canadian dollar's net long position changed by 2,037 lots, and the New Zealand dollar's net short position changed by 33 lots. The euro was the currency with over a 20% change in total one - way positions.

Looking Ahead to 2025 for the US Dollar

In 2025, the global markets have a lot of risks and uncertainties. There's inflation, trade protectionism, and debt problems. The US dollar and US bond yields are still big players in the market, but things could change.

Policy - wise, after Trump became president, there are a lot of unknowns. Tight immigration rules might cause labor shortages in some places, slow down the economy, and push up wages. Uncertain trade tariff policies will hit companies that rely on international supply chains. Exporters might face retaliation, prices will go up for consumers, and this could lead to higher inflation, which can affect the US dollar.

When it comes to interest rates and inflation, if inflation stays high, the 10 - year U.S. Treasury Bond yield could go over 5%. This will make borrowing more expensive for consumers and businesses, slowing down long - term growth. But as the job market cools and long - term bond yields rise, putting pressure on the economy, and with inflation still around, the Fed might slow down rate cuts in 2025 compared to 2024. But a strong dollar might also make the Fed be more lenient to help the economy.

So, even though the job market and inflation data are making people think the Fed will be tougher, political risks like immigration and economic policies are making the US and world economies more uncertain.

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