Forex Insights: US Dollar on verge of ending its four-week winning streak

This week, we’ve observed intriguing developments in the dollar’s movement. Although the dollar held steady around familiar levels, it’s on the verge of ending its four-week winning streak. This shift in momentum deserves our attention, especially with significant economic events and political dynamics unfolding soon.

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This week, the dollar has shown some notable movement. While it has remained steady around familiar levels, it’s now on the brink of breaking its four-week winning streak. This momentum shift is worth close attention, particularly with several major economic events and political factors coming into play.

Analyzing the EUR/USD, we noted a modest 0.30% gain. However, it continues to hover below the 1.0850 mark, signaling persistent bearish sentiment. The USD/JPY pair displayed limited fluctuations within the 151.70–153.90 range, following the Bank of Japan’s (BoJ) decision to keep rates at 0.25%.

Several key factors appear to influence this market landscape. First, the approaching U.S. presidential election has kept investors cautious, creating uncertainty around policy direction. Second, ongoing tensions in the Middle East weigh on market stability, intensifying concerns over supply chains and energy prices. Third, the Federal Reserve’s strategies have shown promise for a “soft landing,” yet the situation remains delicate. Increased volatility is likely as these events unfold. The Euro faces added pressure with upcoming EU economic data, and the Yen may shift following the BoJ’s minutes release.

The U.S. dollar’s position against the Indian rupee (USD/INR) remained stable, staying within a narrow range throughout a holiday-shortened week. Despite notable foreign equity outflows and multi-month highs in U.S. Treasury yields, the rupee’s 10-day realized volatility dropped below 0.5%. U.S. labor data provided mixed signals—job openings dropped to a three-year low in September, and nonfarm payrolls growth slowed, suggesting a softening job market. However, consumer confidence surged to a nine-month high in October, showing optimism about labor market conditions.

These mixed signals have clouded the Fed’s rate trajectory, slightly weakening the dollar and lowering Treasury yields. The market has largely priced in a Federal Reserve quarter-point rate cut, with a 98.9% likelihood of a 25 basis points reduction. This outlook, however, has increased foreign portfolio investor withdrawals from Indian equities. October marked the worst month for the Nifty 50 and S&P BSE Sensex in over four years, with declines of 6.22% and 5.83%, respectively.

Moreover, India’s foreign exchange reserves dropped by $3.4 billion to $684.8 billion as of October 25, driven primarily by a $4.48 billion decline in Foreign Currency Assets. As global political and economic events unfold, these factors will continue to shape market dynamics and investors’ strategies in the weeks ahead.