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Forex Today: US Dollar holds near multi-month highs, eyes on central bank speak
Here is what you need to know on Tuesday, October 22:
Following a quiet start to the week, the US Dollar (USD) gathered strength in the American trading hours on Monday, with the USD Index reaching its highest level since early August above 104.00. Early Tuesday, the index stays in a consolidation phase below this level. Richmond Fed Manufacturing Index for October will be the only data featured in the US economic calendar. Throughout the day, several key central bankers, including European Central Bank (ECB) President Christine Lagarde and Bank of England (BoE) Governor Andrew Bailey, will be delivering speeches.
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 | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.37% | 0.33% | 0.78% | 0.09% | 0.30% | 0.20% | 0.04% | |
| EUR | -0.37% | -0.11% | 0.34% | -0.22% | -0.09% | -0.27% | -0.40% | |
| GBP | -0.33% | 0.11% | 0.45% | -0.24% | -0.01% | -0.12% | -0.34% | |
| JPY | -0.78% | -0.34% | -0.45% | -0.70% | -0.48% | -0.53% | -0.80% | |
| CAD | -0.09% | 0.22% | 0.24% | 0.70% | 0.12% | 0.17% | -0.17% | |
| AUD | -0.30% | 0.09% | 0.00% | 0.48% | -0.12% | -0.03% | -0.34% | |
| NZD | -0.20% | 0.27% | 0.12% | 0.53% | -0.17% | 0.03% | -0.21% | |
| CHF | -0.04% | 0.40% | 0.34% | 0.80% | 0.17% | 0.34% | 0.21% |
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 USD benefited from the risk-averse market environment and started to outperform its major rivals as Wall Street's main indexes opened on a bearish note. In the European morning on Tuesday, US stock index futures are down between 0.2% and 0.3%.
Gold gathered bullish momentum on Monday and climbed to a new record-high of $2,740. Although XAU/USD erased its gains to close the day flat near $2,730, it managed to regain its traction early Tuesday. At the time of press, Gold was up more than 0.5% on the day above $2,730.
Bank of Japan (BoJ) Executive Director Takashi Kato said on Tuesday that they are not targeting FX levels but added that they are carefully looking at upside risks from rising import prices. USD/JPY rose nearly 1% on Monday and continued to push higher in the Asian session on Tuesday. After touching its highest level in over two months above 151.00, the pair retreated to toward 150.70.
EUR/USD dropped toward 1.0800 and lost 0.5% on Monday to register its lowest daily close since early August. The pair finds it difficult to stage a rebound and trades at around 1.0820 in the European morning on Tuesday. ECB President Lagarde will participate in a conversation with Bloomberg journalist Francine Lacqua at 14:30 GMT. Later in the day, she will be appearing a panel discussion about the future of cross-border payments during the 2024 Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) in Washington DC.
GBP/USD failed to build on the recovery gains it recorded in the second half of the previous week and dropped below 1.3000 on Monday. The pair managed to erase a portion of its recent losses and was last seen trading slightly above 1.3000. BoE Governor Bailey will deliver a keynote address at the Bloomberg Global Regulatory Forum in New York at 13:25 GMT.
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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