US Stock Drop Pushes Forex Markets into Tumult

Joshua Crafter

Volatility in the US stock markets spelt major trouble for the dollar on Thursday.

The VIX, known officially as the CBOE Volatility Index, is a tool used to measure how much potential for volatility is perceived by Wall Street to exist. On Thursday morning it spiked dramatically to 22.96 – the highest point it has been at since April of this year.

As a result, the US dollar index – which assesses the greenback’s position compared to six other important global currencies – went down by just over 0.3%. It hit 95.21 at one stage.

Other global currencies also surged yesterday and into today. Both the pound and the euro saw rises as a result of a statement from Michel Barnier, the chief Brexit negotiator on the EU side.

Barnier said that Britain’s withdrawal agreement was now largely agreed in advance of the EU’s 28-strong national leaders meeting next week.

The euro went up by 0.35% to 1.1566, while the pound hit a weekly high of $1.3228 against the flailing US dollar.

But the main winner in the currency markets was the Japanese yen.

While the US dollar is usually the currency which gets perceived as a safe haven during times of trouble, on this occasion, it was the yen which took the title.

The JPY/USD pair soared as a result of the problems for the US economy, reaching 112.13. That is the pair’s best performance so far in October.

As the week draws to a close, there’s still a lot for forex traders to keep an eye out for.

Today sees the usual weekly employment data out of the US – a release which, given its capacity as an indicator for the performance of the wider economy, can often give clues as to whether interest rate rises are on the horizon or not.

Initial American jobless claims are expected to drop from 207,000 to 206,000 when announced at 12.30pm GMT, although the number of ongoing claimants is expected to rise from 1.65 million to 1.66 million.

The main data release will be the US consumer price index (without food and energy) for September at 12.30pm GMT, where a year on year rise of 0.1% is expected.

Looking ahead to Friday, Australian home loans data for August is out at 12.30am GMT. The country’s financial stability review report is made public at the same time.

At 6am GMT, Europe’s focus will be on Germany where consumer price index data for September will be out. Year on year change is expected to hover at 2.3%, while month on month change is predicted to stay static too – at 0.4%.

US import and export price indices for September are out at 12.30pm GMT on Friday, too. Month on month changes are expected to be quite substantial this time, rising from -0.6% last year to 0.2% this year.

Finance ministers and central bank leaders from around the world’s most powerful economies, meanwhile, will continue to confer at the G20 meeting on Friday – which takes place all day.

There will also be an International Monetary Fund, or IMF, meeting towards the end of the week, and this will continue into the weekend.

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Joshua Crafter
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