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Forex Today: US inflation data stand out in busy calendar day
Here is what you need to know on Wednesday, April 10:
The US Dollar (USD) holds steady as markets eagerly await the Consumer Price Index (CPI) data for March. Later in the American session, the Federal Reserve (Fed) will release the minutes of the March policy meeting. Additionally, the Bank of Canada (BoC) will announce monetary policy decisions before Governor Tiff Macklem speaks on the policy outlook and responds to questions from the press.
Major currency pairs spent the day fluctuating in familiar ranges on Tuesday as investors remained reluctant to take large positions before the US inflation data. On a yearly basis, the CPI is forecast to rise 3.4% in March, while the Core CPI is expected to increase 3.7%. Financial markets stay subdued early Wednesday, with the USD Index moving sideways slightly above 104.00. In the meantime, US stock index futures trade marginally higher following Wednesday's choppy action and the benchmark 10-year US Treasury bond yield stays below 4.4% after losing more than 1% in the previous day.
US CPI Forecast: March data to signal bumpy progress in inflation retreat.
Economic Indicator
Consumer Price Index (YoY)
Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.
Read more.Last release: Tue Mar 12, 2024 12:30
Frequency: Monthly
Actual: 3.2%
Consensus: 3.1%
Previous: 3.1%
Source: US Bureau of Labor Statistics
The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.
The BoC is widely expected to leave the policy rate unchanged at 5% after April meeting. USD/CAD struggled to find direction on Tuesday and closed the day virtually unchanged slightly below 1.3600. The pair edges lower toward 1.3550 in the early European session.
After rising toward 1.0900, EUR/USD lost its traction and declined to the 1.0850 area late Tuesday. The pair stays relatively quiet near this level midweek.
GBP/USD erased a portion of its daily losses after rising above 1.2700 on Tuesday but ended up posting small gains for the day. The pair holds its ground in the European morning and trades comfortably above 1.2650.
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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.17% | -0.41% | -0.28% | -0.80% | 0.07% | -1.09% | 0.06% | |
| EUR | 0.17% | -0.24% | -0.11% | -0.62% | 0.24% | -0.90% | 0.23% | |
| GBP | 0.41% | 0.24% | 0.13% | -0.38% | 0.48% | -0.66% | 0.48% | |
| CAD | 0.29% | 0.11% | -0.12% | -0.50% | 0.35% | -0.78% | 0.35% | |
| AUD | 0.80% | 0.62% | 0.39% | 0.50% | 0.86% | -0.27% | 0.85% | |
| JPY | -0.07% | -0.25% | -0.47% | -0.35% | -0.87% | -1.13% | 0.01% | |
| NZD | 1.06% | 0.88% | 0.65% | 0.78% | 0.27% | 1.13% | 1.11% | |
| CHF | -0.07% | -0.25% | -0.48% | -0.35% | -0.87% | 0.00% | -1.16% |
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).
Earlier in the day, the Reserve Bank of New Zealand (RBNZ) announced that it maintained the interest rate at 5.5% as widely anticipated. "A restrictive monetary policy stance remains necessary to further reduce capacity pressures and inflation," the RBNZ noted in its policy statement. After closing in the green on Tuesday, NZD/USD continued to push higher in the Asian session and reached its strongest level since March 21 above 0.6070.
RBNZ holds interest rate at 5.50%, as expected.
USD/JPY continues to move up and down in a very tight range slightly below 152.00 on Wednesday. Bank of Japan (BoJ) Governor Kazuo Ueda said earlier in the day that he expects accommodative financial conditions to be maintained for the time being, given the current perspective for economic activity and prices.
Gold set yet another new all-time high above $2,360 on Tuesday. XAU/USD stays relatively calm early Wednesday and fluctuates in a narrow band above $2,350.
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.
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