Forex Today: BoE rate decision, employment-related US data to ramp up volatility
Here is what you need to know on Thursday, August 7:
Markets remain cautious on Thursday as they assess the latest news surrounding the US trade regime, while waiting for the Bank of England's (BoE) monetary policy announcements. Later in the day, the US economic calendar will feature weekly Initial Jobless Claims data alongside Unit Labor Costs for the second quarter.
The US Dollar (USD) came under bearish pressure on Wednesday after United States (US) President Donald Trump delivered news regarding tariffs. Trump issued an executive order imposing an additional 25% tariff on Indian imports and said that he could impose an extra 25% tariff on Chinese goods over China's purchases of Russian oil. Additionally, he said that he will impose a 100% tariff on semiconductors and chips, but not for companies that are building in the US, and threatened an extra 15% tariff on all Japanese imports. After posting marginal gains on Monday and Tuesday, the USD Index turned south and lost more than 0.5% on Wednesday. The index stays relatively calm and fluctuates above 98.00 in the European morning on Thursday.
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.73% | -0.63% | -0.10% | -0.33% | -0.77% | -0.74% | 0.15% | |
| EUR | 0.73% | 0.14% | 0.64% | 0.40% | -0.18% | -0.02% | 0.86% | |
| GBP | 0.63% | -0.14% | 0.53% | 0.26% | -0.33% | -0.16% | 0.73% | |
| JPY | 0.10% | -0.64% | -0.53% | -0.24% | -0.82% | -0.64% | 0.41% | |
| CAD | 0.33% | -0.40% | -0.26% | 0.24% | -0.60% | -0.40% | 0.46% | |
| AUD | 0.77% | 0.18% | 0.33% | 0.82% | 0.60% | 0.16% | 1.05% | |
| NZD | 0.74% | 0.02% | 0.16% | 0.64% | 0.40% | -0.16% | 0.87% | |
| CHF | -0.15% | -0.86% | -0.73% | -0.41% | -0.46% | -1.05% | -0.87% |
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 BoE is widely anticipated to lower the policy rate by 25 basis points (bps) to 4% after the August meeting. After announcing the rate decision, BoE Governor Andrew Bailey will deliver the policy statement and respond to questions in a press conference starting at 11:30 GMT. GBP/USD stays in a consolidation phase above 1.3350 after rising more than 0.4% on Wednesday.
During the Asian trading hours, the data from China showed that the Trade Surplus declined to $98.24 billion in July from $114.77 billion in June. On a yearly basis, Exports rose by 7.2% in this period, while Imports increased by 4.1%. AUD/USD holds its ground in the European morning and trades in positive territory above 0.6500.
EUR/USD gathered bullish momentum and rose more than 0.7% on Wednesday. The pair continues to stretch higher toward 1.1700 in the European session on Thursday.
USD/JPY trades marginally lower near 147.00 on Thursday after posting small losses on Wednesday.
Gold struggles to find direction and extends its sideways grind above $3,370 following a spike toward $3,400 during the Asian trading hours.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
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.
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