Durrant Pate/Contributor

The Jamaican dollar depreciated by 0.5 per cent last week on the back of the Bank of Jamaica (BOJ) not intervening in the foreign exchange market that week.

The American dollar ended the week with the selling rate moving from J$152.61 on July 15, 2022, to J$153.40 on July 22, 2022. This depreciation reflects strong demand for the US dollar relative to flat supply especially considering there was no BOJ intervention.

If this level of demand persists, the BOJ could intervene to shore up the supplies of American dollars in the market over the coming weeks. The greenback dollar ended yesterday’s trading at J$154.18 to US$1.

In the meantime, the US dollar money market remains stable and moderately liquid despite market activity. This is due to improved tourism inflows, which continue to support US dollar liquidity.

Tightening FX conditions

However, market analysts say conditions could tighten somewhat in the coming months. The Federal Reserve has now raised interest rates by another 75bps leaving the door open to the possibility of even a larger, full-percentage-point increase.

With this expected rate hike along with reports of current liquidity strains in US markets, local US dollar liquidity could be adversely affected in the upcoming months.

Given this fact, it is anticipated that the BOJ will continue to push US dollar liquidity in an effort to stabilise the market. Broker market demand for US dollar remains at 30-days and longer-tenured funds with some brokers offering as high as 5.00 per cent to clients.