Forex Today: All eyes on Fed rate decision, Powell presser
Here is what you need to know on Wednesday, May 7:
The US Dollar (USD) struggles to stay resilient against its rivals as market attention turns to the Federal Reserve's (Fed) monetary policy announcements and Fed Chairman Jerome Powell's press conference later in the American session. During the European trading hours, Eurostat will publish Retail Sales data for March.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.38% | -0.78% | -1.24% | -0.09% | -0.47% | -0.97% | -0.30% | |
| EUR | 0.38% | -0.13% | -0.62% | 0.55% | 0.18% | -0.32% | 0.34% | |
| GBP | 0.78% | 0.13% | -0.71% | 0.68% | 0.31% | -0.20% | 0.47% | |
| JPY | 1.24% | 0.62% | 0.71% | 1.19% | 0.80% | 0.37% | 1.08% | |
| CAD | 0.09% | -0.55% | -0.68% | -1.19% | -0.67% | -0.87% | -0.21% | |
| AUD | 0.47% | -0.18% | -0.31% | -0.80% | 0.67% | -0.50% | 0.17% | |
| NZD | 0.97% | 0.32% | 0.20% | -0.37% | 0.87% | 0.50% | 0.66% | |
| CHF | 0.30% | -0.34% | -0.47% | -1.08% | 0.21% | -0.17% | -0.66% |
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 Index, which tracks the USD's performance against a basket of six major currencies, closed in negative territory for the third consecutive trading day on Tuesday. Early Wednesday, the USD Index fluctuates in a narrow channel below 99.50. Later in the day, the Fed is widely anticipated to keep the interest rate unchanged at 4.25%-4.5%. Market participants will pay close attention to Powell's comments on the inflation and growth outlook. US Deputy Treasury Secretary Michael Faulkender said late Tuesday that despite ongoing market tensions and investor concerns about US economic stability, demand for US Treasuries and USD remain high.
Meanwhile, US stock index futures were last seen rising about 0.4% on the day, after Wall Street's main indexes registered large losses on Tuesday. The improving risk mood seems to be a product of the confirmation of first official talks between China and the US. Washington announced late Tuesday that Treasury Secretary Scott Bessent and chief trade negotiator Jamieson Greer will meet China's economic tsar He Lifeng in Geneva this Saturday.
During the Asian trading hours, People's Bank of China (PBOC) Governor Pan Gosheng announced that they've decided to cut the Reserve Requirement Ratio (RRR) and the policy rate by 50 basis points (bps) and 10 bps, respectively, following a meeting with the China Securities Regulatory Commission and the National Financial Regulatory Authority. AUD/USD advanced to a fresh 2025-high above 0.6500 following this development before retreating below this level by the European session.
Gold built on Monday's impressive gains and rose nearly 3% on Tuesday to touch a fresh two-week high above $3,430. XAU/USD corrects lower midweek and trades below $3,400, losing more than 1% on the day. In addition to the escalating geopolitical tensions in the Middle East, India-Pakistan conflict helped the precious metal rose sharply in the first half of the week.
EUR/USD benefited from the broad USD weakness and rose nearly 0.5% on Tuesday. The pair moves sideways above 1.1350 in the European session on Wednesday.
GBP/USD gathered bullish momentum and climbed above 1.3400 on Tuesday. The pair edges lower early Wednesday but holds above 1.3350. The Bank of England will announce policy decisions on Thursday.
After losing nearly 1% on Monday, USD/JPY continued to push lower and fell about another 1% on Tuesday. The pair stages a rebound early Wednesday and trades near 143.00. In the Asian session on Thursday, the Bank of Japan will publish Monetary Policy Meeting Minutes.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
