Forex Today: Crucial US inflation data to lift market volatility
Here is what you need to know on Wednesday, August 12:
Major currency pairs trade in familiar ranges early Wednesday as investors refrain from taking large positions ahead of the highly-anticipated July Consumer Price Index (CPI) data from the United States (US).
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 | 0.16% | -0.13% | 1.04% | -0.12% | 0.08% | 0.47% | 0.51% | |
| EUR | -0.16% | -0.31% | 0.83% | -0.39% | -0.14% | 0.21% | 0.25% | |
| GBP | 0.13% | 0.31% | 1.08% | -0.08% | 0.16% | 0.51% | 0.54% | |
| JPY | -1.04% | -0.83% | -1.08% | -0.84% | -0.60% | -0.39% | -0.30% | |
| CAD | 0.12% | 0.39% | 0.08% | 0.84% | 0.24% | 0.45% | 0.69% | |
| AUD | -0.08% | 0.14% | -0.16% | 0.60% | -0.24% | 0.35% | 0.37% | |
| NZD | -0.47% | -0.21% | -0.51% | 0.39% | -0.45% | -0.35% | 0.03% | |
| CHF | -0.51% | -0.25% | -0.54% | 0.30% | -0.69% | -0.37% | -0.03% |
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 cautious market mood helped the US Dollar (USD) stay resilient against its major rivals on Tuesday. In the early European session on Wednesday, the USD Index trades marginally higher on the day but stays below 100.00, while US stock index futures stay virtually unchanged after Wall Street's main indexes closed in the red on Tuesday. Markets expect the annual CPI inflation to soften to 3.4% in July from 3.5% in June, and see the monthly core CPI rising by 0.2%.
USD seen rangebound as Fed hike bar stays high and Oil supply hopes remain constrained
Analysts at OCBC argue that the bar for a meaningful shift in Federal Reserve (Fed) policy outlook remains elevated, noting that "core CPI would need to print at 0.3% MoM or higher in July, above the 0.2% consensus forecast, to materially lift expectations of a September rate hike." In their view, a "rangebound USD, combined with a constructive risk backdrop, should continue to support carry trades despite ongoing volatility in oil markets." On commodities, they point out that "oil prices eased on hopes that the Strait of Hormuz could reopen, but Iran's firm conditions for Washington suggest any near-term boost to energy supply is likely to be limited," tempering optimism over a rapid improvement in the energy outlook.
US President Donald Trump said that the situation with Iran was "going fine" and that the US forces are in "total control" of the Strait of Hormuz. CNN, however, disputed Trump's claim by noting that only eight vessels crossed the waterway on Tuesday, compared to an average of 120 before the war. In the meantime, the US Energy Information Administration (EIA) revised its crude Oil price projections, noting that they now expect the barrel of West Texas Intermediate (WTI) to average $80.88 in 2026, compared to $76.26 in the previous forecast.
Oil rebound tempers inflation relief as Hormuz deal remains elusive
Analysts at Commerzbank observe that the situation around the Strait of Hormuz remains unresolved, with “conflicting signals” indicating that while negotiations are progressing, “a deal capable of restoring normal shipping through the Strait of Hormuz does not yet appear imminent.” They add that “lower energy prices in July should help ease headline inflation,” but caution that “the subsequent rebound in oil prices means energy could again place upward pressure on inflation in the coming months.”
EUR/USD continues to move sideways below 1.1550 after closing virtually unchanged on Tuesday. Germany's Destatis confirmed earlier in the session that the annual CPI inflation in July was 2.8%.
GBP/USD holds steady at around 1.3500 after failing to make a decisive move in either direction on Tuesday.
AUD/USD registered small daily gains on Tuesday following the Reserve Bank of Australia's (RBA) policy announcements. The pair stays in a consolidation phase at around 0.7050 in the European morning on Wednesday.
Gold (XAU/USD) reversed its direction after reaching its highest level in two months above $4,430 on Tuesday and ended the day with small losses. XAU/USD regains its traction in the European session on Wednesday and rises toward $4,400.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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.
