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Forex Today: US Dollar recovers modestly, key data releases coming up
Here is what you need to know on Tuesday, July 16:
Following the previous week's sharp decline, the US Dollar (USD) Index edges higher early Tuesday after posting small gains on Monday. Export Price Index, Import Price Index and Retail Sales data for June will be featured in the US economic docket. Statistics Canada will release June Consumer Price Index (CPI) figures in the early trading hours of the American session.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.11% | 0.18% | 0.19% | 0.34% | 0.60% | 0.83% | 0.05% | |
| EUR | -0.11% | 0.11% | 0.28% | 0.42% | 0.53% | 0.91% | 0.13% | |
| GBP | -0.18% | -0.11% | 0.27% | 0.33% | 0.42% | 0.75% | 0.02% | |
| JPY | -0.19% | -0.28% | -0.27% | 0.14% | 0.18% | 0.59% | -0.34% | |
| CAD | -0.34% | -0.42% | -0.33% | -0.14% | 0.19% | 0.48% | -0.30% | |
| AUD | -0.60% | -0.53% | -0.42% | -0.18% | -0.19% | 0.38% | -0.39% | |
| NZD | -0.83% | -0.91% | -0.75% | -0.59% | -0.48% | -0.38% | -0.78% | |
| CHF | -0.05% | -0.13% | -0.02% | 0.34% | 0.30% | 0.39% | 0.78% |
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 cautious market mood at the start of the week helped the USD stay resilient against its rivals. In the second half of the day, Federal Reserve (Fed) Chairman Jerome Powell refrained from confirming a rate cut in September, further supporting the currency. Powell acknowledged the soft inflation data, saying that the last three readings represent further progress, but reiterated that they will make decisions meeting-by-meeting.
The USD Index edges higher toward 104.50 in the European session and the benchmark 10-year US Treasury bond yield stays near 4.2%. Meanwhile, US stock index futures trade marginally higher after Wall Street's main indexes closed the first trading day of the week in positive territory.
USD/CAD started the week on a bullish note and gained nearly 0.4% on Monday. Investors expect the CPI to rise 0.1% on a monthly basis in June following the surprising 0.6% increase recorded in May. Ahead of the inflation data, USD/CAD inches higher toward 1.3700.
EUR/USD climbed to its highest level since late March above 1.0920 on Monday but failed to preserve its bullish momentum. The pair trades in a tight channel at around 1.0900 in the European morning. ZEW sentiment data for Germany and the Eurozone will be published on Tuesday.
After registering impressive gains for two consecutive weeks, GBP/USD staged a correction as buyers backed away after testing 1.3000. The pair was last seen moving sideways slightly above 1.2950. The UK's Office for National Statistics will publish June inflation data in the early European morning on Wednesday.
Gold regained its traction after testing $2,400 and closed modestly higher on Monday. XAU/USD holds its ground and pushes higher toward $2,440 at the beginning of the European session on Tuesday.
USD/JPY closed the first day of the week virtually unchanged after suffering large losses in the second half of the previous week. The pair gain traction early Tuesday and trades in positive territory near 158.50.
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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