This week, the US Dollar is dropping mainly because people expect lower interest rates from the Federal Reserve, not because of geopolitical concerns. The Japanese yen is performing well against risk-sensitive currencies, like the Swedish krona. The US Thanksgiving holiday has led to lighter trading conditions, which could create chances for Japanese authorities to step in and influence the USD/JPY exchange rate. However, they might wait for a negative data release on the US dollar before taking action, reducing the urgency for now.

US Dollar Correction Against Other Currencies

Even though the US Dollar is correcting, it remains overvalued compared to G10 currencies. With limited potential for further cuts in interest rate expectations, we should take a neutral approach to the USD during Thanksgiving. In market activity, the EUR/USD is stable around 1.1600 with low volatility following the holiday. The GBP/USD has corrected after reaching new highs, lacking a clear trend. Gold faces slight pressure due to reduced trading activity during the holiday. Bitcoin has climbed above $91,000, while Ethereum and XRP are struggling despite a weakening bearish trend. Thanks to Thanksgiving, UK and European indices have dipped slightly, with attention on the UK budget review. Ripple (XRP) is having a tough time gaining momentum and can’t break through key resistance levels. As we near December, the US dollar is weakening. This trend seems influenced more by the Federal Reserve’s cautious stance than by any significant geopolitical events. October’s core inflation data came in lower than expected at 2.8%, which strengthens the belief that the Fed might cut rates in 2026. This indicates a fundamental shift in rate expectations rather than just a temporary change.

Currency Market Implications

With US markets quiet during Thanksgiving, the thin trading environment presents a potential opportunity for intervention in USD/JPY. This pair has been hovering just above the 152 mark, which has historically raised red flags from the Ministry of Finance. A sudden intervention by Japanese authorities could catch the market off guard in these low-volume conditions. For options traders, this situation suggests that implied volatility might be too low. The VIX is currently near 14, reflecting a sense of complacency in the market. Buying out-of-the-money puts on USD/JPY in the coming weeks could be an affordable way to prepare for a sharp correction driven by intervention. We are also witnessing the Japanese yen outperform risk-sensitive currencies, signaling a risk-off move related to lower global rate expectations. This pattern indicates that betting on the yen is not just a play against the dollar but also a broader stance on slowing global growth. The yield difference that has hurt the yen for years is finally beginning to narrow. Reflecting on the early 2020s post-pandemic years, we observed similar dollar corrections when the market began adjusting for a more cautious Fed. The trend of a strong dollar rally followed by a sharp shift due to changing rate policies is familiar. History shows that once this adjustment starts, it can gain significant momentum into the new year. Create your live VT Markets account and start trading now.

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