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Forex Today: Euro rally pauses ahead of ECB, hawkish BoJ commentary lifts JPY
Here is what you need to know on Thursday, March 7:
The European Central Bank (ECB) will announce monetary policy decisions and publish the revised macroeconomic projections on Thursday. The US economic docket will feature weekly Initial Jobless Claims, Q4 Unit Labor Costs and January Trade Balance data. Later in the American session, Federal Reserve Chairman Jerome Powell will testify before the Senate Banking Committee.
ECB Preview: Forecasts from 10 major banks, not on the verge of cutting yet, June moving into focus.
The US Dollar (USD) came under selling pressure during Fed Chairman Powell's testimony before the House Financial Services Committee. Powell said that incoming data will determine when they will start reducing the policy rate. Commenting on the economic outlook, Powell noted that there was no reason to think the economy was in or facing a significant near-term risk of recession. The USD Index fell 0.4% on Wednesday and registered losses for the fourth consecutive day. At the time of press, the index was trading modestly lower on the day at around 103.20. Meanwhile, the benchmark 10-year US Treasury bond yield holds steady near 4.1% after losing more than 1% on Wednesday.
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 weakest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.55% | -0.64% | -0.32% | -0.90% | -1.34% | -0.74% | -0.23% | |
| EUR | 0.55% | -0.09% | 0.23% | -0.34% | -0.79% | -0.18% | 0.31% | |
| GBP | 0.64% | 0.09% | 0.30% | -0.25% | -0.69% | -0.09% | 0.42% | |
| CAD | 0.32% | -0.22% | -0.31% | -0.54% | -1.02% | -0.40% | 0.08% | |
| AUD | 0.89% | 0.32% | 0.23% | 0.55% | -0.46% | 0.15% | 0.63% | |
| JPY | 1.32% | 0.78% | 0.66% | 0.97% | 0.45% | 0.59% | 1.08% | |
| NZD | 0.73% | 0.17% | 0.08% | 0.40% | -0.15% | -0.61% | 0.48% | |
| CHF | 0.27% | -0.31% | -0.40% | -0.08% | -0.65% | -1.07% | -0.49% |
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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
EUR/USD gathered bullish momentum and reached its highest level since late January above 1.0900 on Wednesday. The ECB is widely expected to leave key rates unchanged following the March policy meeting. ECB President Christine Lagarde comments on the policy outlook and respond to questions in a press conference starting at 13:45 GMT.
EUR/USD holds steady near 1.0900 ahead of ECB interest rate decision.
Bank of Japan (BoJ) policy board member Junko Nakagawa said early Thursday that prospects of sustainably achieving the 2% inflation were gradually heightening and argued that they didn't necessarily need to wait for all small, mid-sized firms' wage talks outcome in deciding when to end negative rates. Additionally, BoJ Governor Kazuo Ueda noted that it was “fully possible to seek exit from stimulus while striving to achieve 2% inflation target.” USD/JPY declined sharply during during the Asian trading hours on Thursday and was last seen trading slightly above 148.00, where it was down nearly 1% on a daily basis.
Japanese Yen clings to strong intraday gains near multi-week top against USD.
The data from China showed early Thursday that the trade surplus widened to $125.16 billion in January-February period from $75.34 billion. After rising 0.9% on Wednesday, AUD/USD continued to edge higher early Thursday and was last seen trading near 0.6600.
Australian Dollar extends gains after upbeat Chinese Trade data.
GBP/USD struggles to gather bullish momentum during the European trading hours on Wednesday as investors assessed the details of the Sprint Budget. Later in the day, the broad-based USD weakness helped the pair push higher. Early Thursday, GBP/USD consolidates its weekly gains slightly below 1.2750.
UK's Hunt: Will extend energy windfall tax by 1 year.
Gold extended its rally as US Treasury bond yields edged lower and touched a new all-time high of $2,161 early Thursday. XAU/USD stages a technical correction and holds steady at around $2.155 in the European morning.
Gold price prolongs its strong uptrend, hits fresh record high on rate cut bets.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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