Forex Today: US Dollar rebounds as markets remain focused on Fedspeak ahead of blackout
Here is what you need to know on Friday, July 19:
The US Dollar (USD) benefited from the souring market mood on Thursday, with the USD Index gaining more than 0.4% on the day and erasing its weekly losses. The USD Index holds steady early Friday as investors await final comments from Federal Reserve officials before the blackout period starts on Saturday. During the American trading hours, Statistics Canada will release Retail Sales for May.
US Dollar PRICE This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.19% | 0.46% | -0.44% | 0.51% | 1.34% | 1.32% | -0.64% | |
| EUR | -0.19% | 0.31% | -0.45% | 0.52% | 1.18% | 1.32% | -0.63% | |
| GBP | -0.46% | -0.31% | -0.55% | 0.20% | 0.87% | 0.96% | -0.98% | |
| JPY | 0.44% | 0.45% | 0.55% | 0.96% | 1.57% | 1.74% | -0.41% | |
| CAD | -0.51% | -0.52% | -0.20% | -0.96% | 0.75% | 0.80% | -1.17% | |
| AUD | -1.34% | -1.18% | -0.87% | -1.57% | -0.75% | 0.14% | -1.83% | |
| NZD | -1.32% | -1.32% | -0.96% | -1.74% | -0.80% | -0.14% | -1.97% | |
| CHF | 0.64% | 0.63% | 0.98% | 0.41% | 1.17% | 1.83% | 1.97% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Following the July meeting, the European Central Bank (ECB) announced that it left the key rates unchanged, as widely expected. During the post-meeting press conference, ECB President Christine Lagarde reiterated the data-dependent approach to policy and noted that they expect to reach the 2% inflation target in the second half of next year. Early Friday, some mixed comments from ECB officials seem to be making it difficult for the Euro to stay resilient against its rivals. At the time of press, EUR/USD was trading modestly lower on the day below 1.0900. In the meantime, Germany's Destatis announced earlier in the day that the Producer Price Index rose 0.2% on a monthly basis in June after staying unchanged in May.
The UK's Office for National Statistics reported on Friday that Retail Sales declined 1.2% on a monthly basis in June. This reading followed the 2.9% increase recorded in May and came in worse than the market expectation for a decrease of 0.4%. After losing 0.5% on Monday, GBP/USD continues to edge lower early Friday and was last seen trading below 1.2950.
The data from Japan showed that the National Consumer Price Index (CPI) rose 2.8% on a yearly basis in June, matching May's increase. The core CPI, which excludes volatile food and energy prices, rose 2.6% in the same period, compared to the market expectation of 2.7%. Following Wednesday's steep decline, USD/JPY gained traction and closed in positive territory on Thursday. The pair fluctuate in a tight range below 157.50 in the European morning.
Gold extended its downward correction and closed in negative territory for the second consecutive day on Thursday. XAU/USD stays under bearish pressure at the beginning of the European session on Friday and was last seen losing more than 1% on the day below $2,420.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.