Are forex prices predicting recession?
Forex prices can be closely tied to interest rates and the stock market, and they're currently showing extremes not seen since the dot-com crash and the financial crisis. Find out whether a recession is coming or not.
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Forex price extremes
Major forex pairs including USD/JPY, EUR/JPY, and GBP/JPY are witnessing price extremes not seen in many years. While USD/JPY was higher last year, last year's highs were the most extreme since 1998, and current prices are nearing them once again. EUR/JPY and GBP/JPY, though, are already through highs not seen since 2008 and 2015, respectively.
Forex price extremes tend to occur when interest rates are fluctuating to an abnormal degree; the US yield curve, for example, is currently inverted. These types of environments have historically coincided with the dot-com crash and the financial crisis, however, interest rates and forex could normalize without a stock market crash or recession, theoretically.
USD/JPY historical prices
Interest rate expectations
Major forex pairs like USD/JPY could revert to normal from recent extremes if inflation normalizes and interest rates in the US come down. Currently, US rates are over 5% and expected to hold flat or increase slightly throughout the rest of 2023.* The Bank of Japan could also increase interest rates to close the gap.
There are potential resolutions to these price extremes that do not require a recession, but the historical occurrences have coincided with stock market crashes.
How to trade USD/JPY forex pair
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD/JPY
Trading forex requires an account with a forex provider like IG. USD/JPY can be found in IG's platform under the 'Major' pairs tab. Many traders also watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like IG’s Trading Academy. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
*Data taken from CME Group FedWatch Tool on 6/27/23
This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. See our Summary Conflicts Policy, available on our website.
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