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Forex Today: Markets remain choppy ahead of US data releases
Here is what you need to know on Tuesday, March 26:
Major currency pairs fluctuate in relatively tight ranges early Tuesday as investors refrain from taking large positions ahead of macroeconomic data releases from the US. Durable Goods Orders for February and Housing Price Index for January will be featured in the economic calendar in the American session and the Conference Board will publish the Consumer Confidence report. Market participants will also continue to keep a close eye on comments from central bank officials.
US Consumer Confidence Preview: An uptick in confidence can boost the USD.
The US Dollar (USD) struggled to find demand at the beginning of the week, with the USD Index staging a downward correction following the previous week's rally. As Wall Street's main indexes closed the day marginally lower, the USD managed to find a foothold. In the meantime, the benchmark 10-year US Treasury bond yield gained 1% and snapped a four-day losing streak, further supporting the USD. The USD Index moves up and down in a narrow band slightly above 104.00 in the European morning on Tuesday, while US stock index futures trade modestly higher on the day.
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 Pound Sterling.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.38% | -0.43% | -0.24% | -0.41% | 0.04% | -0.37% | 0.25% | |
| EUR | 0.39% | -0.04% | 0.16% | -0.01% | 0.41% | 0.05% | 0.64% | |
| GBP | 0.43% | 0.05% | 0.21% | 0.04% | 0.47% | 0.10% | 0.68% | |
| CAD | 0.23% | -0.15% | -0.21% | -0.17% | 0.27% | -0.11% | 0.47% | |
| AUD | 0.41% | 0.02% | -0.01% | 0.17% | 0.44% | 0.04% | 0.65% | |
| JPY | -0.04% | -0.42% | -0.36% | -0.24% | -0.43% | -0.40% | 0.23% | |
| NZD | 0.33% | 0.00% | -0.04% | 0.15% | -0.02% | 0.41% | 0.63% | |
| CHF | -0.25% | -0.64% | -0.68% | -0.48% | -0.66% | -0.21% | -0.58% |
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).
The Bank of Japan's (BoJ) Research and Statistics Department reported that the trimmed mean reading for core inflation arrived at 2.3% in February, down from 2.6% in January, and was substantially lower than the peak of 3.4% in September last year. Earlier in the day, Japanese Finance Minister Shunichi Suzuki repeated it’s important for currencies to move in a stable manner reflecting fundamentals and added that they will continue to closely watch foreign exchange moves with a high sense of urgency. USD/JPY closed the first trading day of the week virtually unchanged and extended its sideways grind slightly below 151.50 early Tuesday.
Japanese Yen remains confined in a narrow range against USD, bears not ready to give up yet.
EUR/USD capitalized on the USD weakness and closed higher on Monday. The pair holds steady at around 1.0850 in the European morning. Later in the day, European Central Bank (ECB) chief economist Philip Lane is scheduled to deliver a speech.
GBP/USD staged a rebound after testing 1.2600 on Monday gained 0.3% on the day. The pair trades at around 1.2650 to start the European session.
Gold climbed above $2,180 on Monday but erased a large portion of its daily gains, pressured by rising US T-bond yields. XAU/USD stays in a consolidation phase near $2,170 early Tuesday.
Gold price holds steady above $2,170 level amid modest USD weakness, geopolitical risks.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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