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Forex Today: US Dollar struggles to find demand in Fed aftermath, eyes on BoE and PMI data
Here is what you need to know on Thursday, March 21:
The US Dollar (USD) suffered large losses against its major rivals in the American session on Wednesday as investors reacted to the Federal Reserve's (Fed) policy decisions and Fed Chairman Jerome Powell's remarks on the policy outlook. The USD struggled to find demand early Thursday. Investors await the Bank of England's (BoE) policy announcements and S&P Global PMI data for Germany, the Euro area, the UK and the US. The US economic docket will also feature the weekly Initial Jobless Claims and Existing Home Sales data for February.
The Fed's revised Summary of Projections showed that policymakers still expect a total of 75 basis points reduction in the policy rate in 2024. In the post-meeting press conference, Chairman Powell downplayed inflation concerns and put additional weight on the USD's shoulders. Powell noted that inflation numbers were "quite high" in January and February but said that they have not changed the overall story on disinflation, arguing that they were higher due to seasonal effects. The benchmark 10-year US Treasury bond yield declined toward 4.25% and Wall Street's main indexes rallied following the Fed event. In turn, the USD Index lost nearly 0.5% and snapped a four-day winning streak. Early Thursday, US stock index futures trade in positive territory and the USD Index stays in the red below 103.50.
Jerome Powell speaks on policy outlook after leaving interest rate unchanged.
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 Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.49% | -0.48% | -0.61% | -1.05% | 1.40% | -0.12% | 0.23% | |
| EUR | 0.48% | 0.01% | -0.12% | -0.57% | 1.87% | 0.36% | 0.71% | |
| GBP | 0.48% | -0.01% | -0.12% | -0.56% | 1.87% | 0.36% | 0.70% | |
| CAD | 0.61% | 0.12% | 0.12% | -0.45% | 1.99% | 0.48% | 0.83% | |
| AUD | 1.04% | 0.56% | 0.55% | 0.44% | 2.41% | 0.92% | 1.26% | |
| JPY | -1.42% | -1.92% | -1.85% | -2.03% | -2.48% | -1.53% | -1.18% | |
| NZD | 0.11% | -0.37% | -0.34% | -0.46% | -0.93% | 1.54% | 0.33% | |
| CHF | -0.22% | -0.71% | -0.71% | -0.83% | -1.27% | 1.18% | -0.35% |
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).
During the Asian trading hours, the data from Australia showed that the Unemployment Rate declined to 3.7% in February from 4.1% in January. This reading came in better than the market expectation of 4%. Employment Change was up 116.5K in this period, surpassing analysts' estimate of 40K by a wide margin. AUD/USD extended its rally early Thursday after posting strong gains on Wednesday and it was last seen rising more than 0.5% on the day above 0.6620.
Australia’s Unemployment Rate drops to 3.7% in February vs. 4.0% expected.
Australian Dollar stretches higher amid a weaker US Dollar, awaits US PMI data.
USD/JPY gathered bullish momentum and came within a touching distance of 152.00 in the American session on Wednesday. The pair staged a deep correction in the early Asian session and declined below 150.50 before regaining its traction. At the time of press, the pair was trading marginally lower on the day near 151.00. Japanese Finance Minister Shunichi Suzuki said earlier in the day that they are closely watching the action in foreign exchange markets with a sense of urgency. In the meantime, Bank of Japan Governor Kazuo Ueda said that they expect to maintain the accommodative monetary policy for the time being.
Japanese Yen trims a part of strong intraday gains against USD, not out of the woods yet.
The Bank of England is widely expected to leave the policy rate unchanged at 5.25% after March policy meeting. The statement language following the soft UK inflation data and the vote split will be scrutinized by market participants for fresh clues on the timing of the policy pivot. GBP/USD rose 0.5% on Wednesday and was last seen trading near 1.2800.
USD/CHF closed modestly lower on Wednesday and edged lower toward 0.8850 early Thursday. The Swiss National Bank (SNB) will announce the interest rate decision at 08:30 GMT.
SNB Preview: A rate cut would further undermine the outlook for the CHF – Rabobank.
Gold gathered bullish momentum and climbed to a new all-time high of $2,222 in the Asian session on Thursday before retreating toward $2,200.
Gold price sticks to gains above $2,200 mark, bulls take a brief pause amid risk-on.
EUR/USD rallied above 1.0900 late Wednesday and continued to push higher early Thursday. The pair was last seen trading slightly below 1.0950.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
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