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Forex Today: US Dollar recovery loses steam, focus shifts to mid-tier data releases
Here is what you need to know on Thursday, August 8:
Following a two-day rebound, the US Dollar (USD) seems to be struggling to keep its footing on Thursday, with the USD Index retreating back below 103.00 in the European session. The US Department of Labor will release the weekly Initial Jobless Claims data later in the day. Wholesale Inventories for June will also be featured in the US economic docket.
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 British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.25% | 0.81% | -0.52% | -0.95% | -0.53% | -0.69% | 0.06% | |
| EUR | 0.25% | 0.97% | -0.41% | -0.83% | -0.28% | -0.55% | 0.20% | |
| GBP | -0.81% | -0.97% | -1.32% | -1.76% | -1.24% | -1.51% | -0.76% | |
| JPY | 0.52% | 0.41% | 1.32% | -0.42% | -0.08% | -0.17% | 0.59% | |
| CAD | 0.95% | 0.83% | 1.76% | 0.42% | 0.46% | 0.26% | 0.84% | |
| AUD | 0.53% | 0.28% | 1.24% | 0.08% | -0.46% | -0.27% | 0.48% | |
| NZD | 0.69% | 0.55% | 1.51% | 0.17% | -0.26% | 0.27% | 0.76% | |
| CHF | -0.06% | -0.20% | 0.76% | -0.59% | -0.84% | -0.48% | -0.76% |
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).
After registering impressive gains on Tuesday, Wall Street's main indexes opened decisively higher on Wednesday. The risk rally, however, lost its steam in the second half of the session and US stock indexes closed the day deep in negative territory. In the absence of high-tier data releases or geopolitical headlines, this action suggested that investors might have booked their profits before moving to the sidelines to wait for the next catalyst. In the meantime, the benchmark 10-year US Treasury bond yield continued to push higher on Wednesday but lost its momentum after coming within a touching distance of 4%. Early Thursday, the 10-year US yield is down nearly 1% on the day at around 3.9%, while US stock index futures trade in negative territory.
While speaking at Rotary Club of Armidale Annual Lecture early Thursday, Reserve Bank of Australia (RBA) Governor Michele Bullock noted that the RBA considered to hike rates on Tuesday but noted that they could also cut rates if the economy were to turn down quicker than anticipated. AUD/USD gathered bullish momentum during the Asian trading hours and was last seen rising more than 0.5% on the day above 0.6550.
EUR/USD registered modest losses for the second consecutive day on Wednesday but managed to hold above 1.0900. The pair edges slightly higher toward 1.0950 in the European morning on Wednesday.
The Bank of Japan's (BoJ) Summary of Opinions from its July 30-31 showed on Thursday that some members saw the need for further rate hikes, with one member arguing that the BoJ should eventually raise the policy rate to levels deemed neutral to the economy, which is likely at least around 1%. After gaining more than 1.5% on Wednesday, USD/JPY reversed its direction and was last seen losing 0.7% on the day at 145.70.
GBP/USD stays in a consolidation phase at around 1.2700 after closing the day flat on Wednesday.
Gold failed to gather recovery momentum and posted losses for the fifth consecutive day on Wednesday. XAU/USD gains traction in the European morning on Thursday and edges higher toward $2,400.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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