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Forex Today: Markets await German inflation and Eurozone sentiment data
Here is what you need to know on Thursday, November 28:
The trading action in foreign exchange markets remain subdued early Thursday. Regional and nation-wide Consumer Price Index data from Germany, business and consumer sentiment data from the Eurozone will be watched closely by market participants. Financial markets in the US will remain closed in observance of the Thanksgiving Day holiday.
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 | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.20% | -1.00% | -1.61% | 0.49% | 0.28% | -0.52% | -0.93% | |
| EUR | 1.20% | 0.03% | -1.01% | 1.11% | 1.43% | 0.11% | -0.31% | |
| GBP | 1.00% | -0.03% | -1.04% | 1.08% | 1.39% | 0.08% | -0.34% | |
| JPY | 1.61% | 1.01% | 1.04% | 2.13% | 2.36% | 1.17% | 0.87% | |
| CAD | -0.49% | -1.11% | -1.08% | -2.13% | -0.05% | -0.99% | -1.44% | |
| AUD | -0.28% | -1.43% | -1.39% | -2.36% | 0.05% | -1.30% | -1.71% | |
| NZD | 0.52% | -0.11% | -0.08% | -1.17% | 0.99% | 1.30% | -0.42% | |
| CHF | 0.93% | 0.31% | 0.34% | -0.87% | 1.44% | 1.71% | 0.42% |
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).
The US Dollar (USD) came under selling pressure midweek following mixed macroeconomic data releases from the US. Additionally, month-end flows ahead of the long weekend may have put additional weight on the currency's shoulders. Durable Goods Orders rose by 0.2% on am monthly basis in October, missing the market expectation for an increase of 0.5%. Weekly Initial Jobless Claims edged lower to 213,000 from 215,000 in the previous week. Finally, the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's (Fed) preferred gauge of inflation, rose 2.3% on a yearly basis, matching the market expectation, while the annual core PCE inflation ticked up to 2.8% from 2.7% as anticipated. After falling 0.8% on Wednesday, the USD Index recovers modestly early Thursday and holds above 106.00.
EUR/USD gathered bullish momentum and climbed to a fresh weekly high near 1.0600 on Wednesday. The pair struggles to extend its rebound and trades at around 1.0550 in the European morning on Thursday. In addition to Germany, inflation data from Spain will be also be featured in the European economic docket.
GBP/USD benefited from the persistent USD weakness and registered strong gains on Wednesday. The pair stays in a consolidation phase and trades in a tight channel slightly above 1.2650 early Thursday.
Gold climbed above $2,650 on Wednesday but retraced a large portion of its daily climb to end the day marginally higher. XAU/USD stays quiet in the European morning and fluctuates below $2,640.
Following Tuesday's decline, USD/JPY continued to push lower on Wednesday and touched its weakest level in over a month near 150.50. After losing 1.3% on a daily basis, USD/JPY stages a rebound and was last seen trading above 151.50. In the Asian session on Friday, Tokyo CPI, Industrial Production, Unemployment Rate and Retail Trade data will be featured in the Japanese economic docket.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
(This story was corrected on November 28 at 07:17 GMT to say EUR/USD trades at around 1.0550 in the European morning on Thursday, not Wednesday, and the data from Japan will be released in the Asian session on Friday, not Wednesday.)
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