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Forex Today: Eyes on SNB and BoE policy announcements ahead of US data
Here is what you need to know on Thursday, June 20:
The market action was subdued on Wednesday because US markets were closed in observance of the Juneteenth holiday. The Swiss National Bank (SNB) and the Bank of England (BoE) monetary policy announcements could ramp up volatility during the European trading hours on Thursday. Later in the day, the US economic docket will feature weekly Jobless Claims and Building Permits data for May. Investors will continue to pay close attention to comments from Federal Reserve (Fed) officials as well.
The US Dollar (USD) Index registered small losses on Wednesday. With the benchmark 10-year US Treasury bond yield edging higher early Thursday, the USD Index recovered a portion of this week's losses. In the meantime, US stock index futures trade mixed in the European morning. Nasdaq Futures are up more than 0.5% while Dow Futures trade marginally lower 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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.25% | -0.15% | 0.49% | -0.20% | -0.78% | -0.02% | -0.77% | |
| EUR | 0.25% | 0.12% | 0.76% | 0.05% | -0.62% | 0.29% | -0.51% | |
| GBP | 0.15% | -0.12% | 0.74% | -0.08% | -0.76% | 0.14% | -0.62% | |
| JPY | -0.49% | -0.76% | -0.74% | -0.60% | -1.26% | -0.37% | -1.20% | |
| CAD | 0.20% | -0.05% | 0.08% | 0.60% | -0.63% | 0.19% | -0.54% | |
| AUD | 0.78% | 0.62% | 0.76% | 1.26% | 0.63% | 0.97% | 0.13% | |
| NZD | 0.02% | -0.29% | -0.14% | 0.37% | -0.19% | -0.97% | -0.74% | |
| CHF | 0.77% | 0.51% | 0.62% | 1.20% | 0.54% | -0.13% | 0.74% |
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 BoE is widely anticipated to leave monetary policy settings unchanged following the June policy meeting. There will not be a press conference, and the bank might refrain from making significant changes to its policy meeting ahead of the July 4 election. GBP/USD stays under modest bearish pressure and trades slightly above 1.2700 to start the European session.
The SNB is forecast to lower the policy rate by 25 basis points (bps) to 1.25%. USD/CHF fell sharply at the beginning of the week and touched its weakest level since mid-March below 0.8830. The pair has been consolidating channel slightly below 0.8850 since then.
EUR/USD posted small gains on Wednesday but lost its traction after meeting resistance near 1.0750. The pair trades in negative territory at around 1.0730 in the European morning on Thursday. The European Commission will publish preliminary Consumer Confidence data for June later in the day.
USD/JPY registered gains for the fifth straight day on Wednesday. The pair continue to stretch higher early Thursday and was last seen trading above 158.00.
Gold failed to make a noticeable move in either direction on Wednesday and closed the day virtually unchanged. XAU/USD gathers bullish momentum in the European morning and was last seen trading above $2,340.
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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