Forex Today: Attention shifts away from geopolitics to Fed
Here is what you need to know on Wednesday, June 18:
Following Tuesday's volatile action, financial markets stay relatively calm early Wednesday as investors await the Federal Reserve's (Fed) policy announcements. Alongside the policy statement, the US central bank will also release the revised Summary of Economic Projections (SEP). Ahead of this event, the US economic calendar will feature weekly Initial Jobless Claims and Housing Starts data for May.
The US Dollar (USD) benefited from safe haven flows as United States (US) President Donald Trump's comments suggested that the US could get directly involved in the Israel-Iran conflict. “We now have complete and total control of the skies over Iran,” Trump said and added that Ayatollah Ali Khamenei is "an easy target." The USD Index rose 0.7% on Tuesday and Wall Street's main indexes lost between 0.7% and 1% on the day. Early Wednesday, the USD Index stays in negative territory at around 98.50 and US stock index futures trade marginally higher.
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 | 0.22% | 0.76% | 0.29% | 0.54% | -0.25% | -0.19% | 0.61% | |
| EUR | -0.22% | 0.42% | 0.08% | 0.33% | -0.35% | -0.40% | 0.39% | |
| GBP | -0.76% | -0.42% | -0.33% | -0.09% | -0.76% | -0.81% | -0.02% | |
| JPY | -0.29% | -0.08% | 0.33% | 0.24% | -0.84% | -0.82% | -0.10% | |
| CAD | -0.54% | -0.33% | 0.09% | -0.24% | -0.72% | -0.73% | 0.07% | |
| AUD | 0.25% | 0.35% | 0.76% | 0.84% | 0.72% | -0.05% | 0.74% | |
| NZD | 0.19% | 0.40% | 0.81% | 0.82% | 0.73% | 0.05% | 0.80% | |
| CHF | -0.61% | -0.39% | 0.02% | 0.10% | -0.07% | -0.74% | -0.80% |
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 Fed is widely expected to leave the policy rate unchanged at the range of 4.25%-4.5%. Interest rate, inflation and growth projections in the SEP could trigger a market reaction. Later in the session, Fed Chairman Jerome Powell deliver the policy statement and respond to questions from the press.
The UK's Office for National Statistics reported early Thursday that annual inflation in the UK, as measured by the change in the Consumer Price Index (CPI), edged lower to 3.4% in May from 3.5% in April, as expected. On a monthly basis, the CPI rose 0.2% following the 1.2% increase recorded in the previous month. GBP/USD showed no immediate reaction to these figures and was last seen trading marginally higher on the day slightly above 1.3450. The Bank of England will release its interest rate decision on Thursday.
EUR/USD stages a rebound and holds steady above 1.1500 after losing more than 0.5% on Tuesday. Later in the session, several European Central Bank (ECB) policymakers will be delivering speeches.
Gold closed the day flat on Tuesday after failing to clear $3,400. Early Wednesday, XAU/USD moves sideways slightly above $3,380.
Oil prices shot higher in the second half of the day on Tuesday, with the barrel of West Texas Intermediate (WTI) posting its highest settlement since January above $73.50. WTI corrects lower early Wednesday and trades below $73.
The data from Japan showed in the early Asian session that Machine Orders declined by 9.1% on a monthly basis in April. After closing the previous three trading days in positive territory, USD/JPY edges lower and trades at around 145.00 in the European session on Wednesday.
Dot Plot FAQs
The “Dot Plot” is the popular name of the interest-rate projections by the Federal Open Market Committee (FOMC) of the US Federal Reserve (Fed), which implements monetary policy. These are published in the Summary of Economic Projections, a report in which FOMC members also release their individual projections on economic growth, the unemployment rate and inflation for the current year and the next few ones. The document consists of a chart plotting interest-rate projections, with each FOMC member’s forecast represented by a dot. The Fed also adds a table summarizing the range of forecasts and the median for each indicator. This makes it easier for market participants to see how policymakers expect the US economy to perform in the near, medium and long term.
The US Federal Reserve publishes the “Dot Plot” once every other meeting, or in four of the eight yearly scheduled meetings. The Summary of Economic Projections report is published along with the monetary policy decision.
The “Dot Plot” gives a comprehensive insight into the expectations from Federal Reserve (Fed) policymakers. As projections reflect each official’s projection for interest rates at the end of each year, it is considered a key forward-looking indicator. By looking at the “Dot Plot” and comparing the data to current interest-rate levels, market participants can see where policymakers expect rates to head to and the overall direction of monetary policy. As projections are released quarterly, the “Dot Plot” is widely used as a guide to figure out the terminal rate and the possible timing of a policy pivot.
The most market-moving data in the “Dot Plot” is the projection of the federal funds rate. Any change compared with previous projections is likely to influence the US Dollar (USD) valuation. Generally, if the “Dot Plot” shows that policymakers expect higher interest rates in the near term, this tends to be bullish for USD. Likewise, if projections point to lower rates ahead, the USD is likely to weaken.
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.
