We have seen some volatility and spikes during the holiday period on the FX board, but if we look at the daily chart of the U.S. Dollar Index we can see that the price has not gone far lately. That could change very quickly.
The yen dropped against 15 of its 16 major peers as risk appetite increased amid rising speculation that U.S. lawmakers will reach an agreement to avert a default, curbing demand for Japan’s currency as a refuge.
The political impasse in Washington and wrangles over the U.S. debt ceiling, which is leading to a gradual shutdown of the US government, is yet to seriously rattle market sentiment, but the longer it carries on the greater the risk of extreme market volatility.
The U.S. Federal Reserve appears ready to begin tapering just as other central banks may be adding to their balance sheets. What will this mean for the global forex market? And remember, this is all data-dependent.
When the U.S. Federal Reserve embarked upon the policy of asset purchases (known as “Quantitative Easing”) in the wake of the 2008 credit freeze, the goal was to stimulate the economy by keeping longer term interest rates low.