Japan’s monetary base fell to -7.8% year-on-year in October, down from -6.2% earlier. This shows that the money supply in the economy is decreasing. The finance ministry in China announced that starting November 10, it will remove some tariffs on US agricultural products. At the same time, gold prices are rising as the US government faces a potential record-long shutdown.

USD Exchange Rate Trends

The USD/INR exchange rate is above 88.50 amid lower trading activity due to a holiday in India. The USD/CAD has climbed to a seven-month high, trading above 1.4100, driven by falling crude oil prices. WTI crude oil prices continue to drop and are near $60.00 per barrel because of rising US inventories. China’s Premier noted that protectionist measures have severely affected the global economy. In the cryptocurrency market, ZKsync and Internet Computer are holding their value, while Bitcoin has fallen below $100,000, causing $2 billion in liquidations. Decentralized finance platforms are under scrutiny following a $120 million hack on Balancer, an established decentralized exchange. Highlights include EUR/USD gaining strength and GBP/USD hitting lows, while gold rebounds after a recent dip. Next week may challenge risk sentiment and impact the Dollar, Aussie, and Pound.

Monetary Policy and Political Impact

Japan’s shrinking monetary base is a key current indicator. The Bank of Japan is speeding up its balance sheet reduction to -7.8%, marking a significant shift from years of loose policy. This tightening trend is likely to support the Japanese Yen. Meanwhile, the US government is heading toward one of its longest shutdowns ever. The 35-day shutdown from 2018-2019 was estimated to have cut GDP by $11 billion, reminding us that political gridlock can hurt economic stability and weaken the US dollar. This stark contrast between Japan tightening its policy and the US government paralysis makes shorting the USD/JPY pair an attractive strategy. We anticipate this difference will push the pair lower in the upcoming weeks. Buying put options on USD/JPY could be a smart move to capitalize on this expected decline. The Yen is expected to strengthen against currencies facing their own issues. The British Pound, for instance, is in a significant decline, having dropped for nearly two weeks. This makes shorting GBP/JPY particularly appealing. While China’s decision to cut some agricultural tariffs positively impacts sentiment, it pales in comparison to the major influences of central banks and political events. The combination of a US shutdown and a hawkish Bank of Japan creates potential for high volatility in currency markets. We believe strategies that benefit from increased market fluctuations, like long straddles, could perform well. Gold is trading around $3,950 an ounce, highlighting persistent inflation concerns. This makes the Bank of Japan’s commitment to tightening policy even more crucial, signaling a global effort for price stability—even at the expense of short-term growth. Create your live VT Markets account and start trading now.

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