US Dollar Drops Against Euro, Pound, and Yen

Over the last few months, we’ve seen the FX market reach decade lows in terms of volatility.  We also saw a continuing slew of poor economic data being released from the US combined with a Fed that stopped raising interest  rates in August for the first time in over two years.  This was the perfect recipe for an inevitable sell off of US Dollars and that is exactly what traders saw starting last Thursday during Thanksgiving.  The EUR/USD was rangebound between 1.2500 and 1.2900 since the end of April and the market was just waiting for that breakout.

On what was supposed to be a fairly quiet weekend, with both the US and Japanese markets closed on Thursday, the market saw traders take advantage of thin liquidity to sell off massive positions of dollars.  On Sunday, when most financial institutions began opening up their trading desks again, we saw both the EUR/USD and GBP/USD gap upwards over 100 pips!  Over the course of a few days, the Euro and Pound have rallied over 300 pips to reach yearly highs of 1.3161 and 1.9473 respectively. The market also saw what could be the unwinding of the carry trade in the USD/JPY as the pair dropped to a low of 115.37.

So what is causing all this dumping of dollars? Traders are betting that the Fed will cut interest rates sooner than later combined with the fact that the ECB and BOE are both considering rate hikes.  Whether you are dollar bull or bear, we can all agree that this is a great time to start trading FX.  If you haven’t done so already, find a broker and open that account.