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Forex Today: ECB policy announcements and US data to drive market action

Here is what you need to know on Thursday, September 12:

Financial markets stay relatively quiet early Thursday as investors await the next batch of macroeconomic events. The European Central Bank (ECB) will announce monetary policy decisions on Thursday and ECB President Christine Lagarde will speak on the policy outlook in a press conference. The US economic docket will feature weekly Initial Jobless Claims and Producer Price Index (PPI) data for August.

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 Swiss Franc.

 USDEURGBPJPYCADAUDNZDCHF
USD 0.66%0.65%0.40%0.03%-0.25%0.51%1.06%
EUR-0.66% -0.05%-0.22%-0.62%-0.95%-0.14%0.38%
GBP-0.65%0.05% -1.44%-0.56%-0.89%-0.11%0.43%
JPY-0.40%0.22%1.44% -0.36%-0.62%0.11%0.86%
CAD-0.03%0.62%0.56%0.36% -0.23%0.46%1.19%
AUD0.25%0.95%0.89%0.62%0.23% 0.80%1.31%
NZD-0.51%0.14%0.11%-0.11%-0.46%-0.80% 0.54%
CHF-1.06%-0.38%-0.43%-0.86%-1.19%-1.31%-0.54% 

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).

On Wednesday, mixed August inflation data from the US helped the US Dollar (USD) stay resilient against its rivals. On a yearly basis, the Consumer Price Index (CPI) rose 2.5% in August, down from the 2.9% increase recorded in July. However, the core CPI, which excludes volatile food and energy prices, increased 0.3% on a monthly basis, surpassing the market expectation of 0.2%. The benchmark 10-year US Treasury bond yield recovered toward 3.7% with the immediate reaction to CPI readings and the USD Index erased its losses to end the day flat. Early Thursday, the USD Index holds steady above 101.50 and the 10-year yield fluctuates slightly below 3.7%. Meanwhile, US stock index futures trade marginally higher on the day.

The ECB is widely expected to lower key rates by 25 basis points (bps) after the September policy meeting. Following a short-lasting recovery attempt, EUR/USD lost its traction and touched its lowest level since mid-August at 1.1000 on Wednesday. The pair stays in a consolidation phase above this level in the European morning on Thursday.

GBP/USD lost nearly 0.3% on Wednesday and registered its lowest daily close in three weeks. The pair holds steady at around 1.3050 to begin the European session.

Bank of Japan (BoJ) board member Naoki Tamura said on Thursday that he sees a very long the path towards ending the easy policy. "We must raise short-term rates in several stages while scrutinizing how the economy, inflation respond to such steps," he added. After touching a fresh 2024-low of 140.70 on Wednesday, USD/JPY reversed its direction and was last seen trading modestly higher on the day above 142.50. 

Gold closed modestly lower on Wednesday but managed to stabilize above $2,500. XAU/USD inches higher early Thursday and was last seen trading slighlty below $2,520.

ECB FAQs

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.

Author

Eren Sengezer

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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