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Forex Today: Eyes on German inflation and US consumer sentiment data ahead of central bank meetings

Here is what you need to know on Tuesday, July 30:

Investors remain cautious following Monday's choppy action in financial markets. Second-quarter Gross Domestic Product (GDP) from the Euro area and Germany will be watched closely ahead of July Consumer Price Index (CPI) data from Germany on Tuesday. In the second half of the day, Conference Board Consumer Confidence Index for July and JOLTS Job Openings data for June will be featured in the US economic docket.

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.

 USDEURGBPJPYCADAUDNZDCHF
USD 0.30%0.08%0.79%0.08%-0.18%-0.16%0.32%
EUR-0.30% -0.25%0.47%-0.19%-0.43%-0.47%0.04%
GBP-0.08%0.25% 0.72%0.03%-0.17%-0.20%0.28%
JPY-0.79%-0.47%-0.72% -0.73%-0.94%-0.94%-0.43%
CAD-0.08%0.19%-0.03%0.73% -0.23%-0.27%0.24%
AUD0.18%0.43%0.17%0.94%0.23% -0.00%0.46%
NZD0.16%0.47%0.20%0.94%0.27%0.00% 0.49%
CHF-0.32%-0.04%-0.28%0.43%-0.24%-0.46%-0.49% 

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 US Dollar (USD) gathered strength at the beginning of the week as market mood soured on escalating geopolitical tensions. In the meantime, investors might have adjusted their positions ahead of the Federal Reserve's (Fed) monetary policy announcements on Wednesday. As Wall Street's main indexes closed mixed on Monday, the USD Index climbed to its highest level in nearly 20 days and closed in positive territory. In the European morning on Tuesday, US stock index futures trade marginally lower and the USD Index clings to modest daily gains above 104.50. Meanwhile, the benchmark 10-year US Treasury bond yield stays slightly below 4.2% after posting small losses on Monday.

During the Asian trading hours, the data from Australia showed that Building Permits declined by 6.5% on a monthly basis in June. This reading followed the 5.7% increase recorded in May and came in worse than the market expectation for a decrease of 3%. AUD/USD showed no reaction to this data and was last seen trading marginally higher on the day above 0.6550.

EUR/USD came in within a few pips of 1.0800 on Monday but managed to find a foothold. The pair fluctuates in a tight range at around 1.0800 early Tuesday.

After falling toward 1.2800 and touching its weakest level in nearly three weeks, GBP/USD staged a late rebound to close flat on Monday. The pair stays in a consolidation phase slightly above 1.2850 in the European morning.

Following Monday's indecisive action, USD/JPY gathered bullish momentum in the Asian session on Tuesday. At the time of press, the pair was up more than 0.6% on the day at 155.00. Early Wednesday, the Bank of Japan will announce monetary policy decisions.

Gold failed to make a decisive move in either direction on Monday amid a lack of activity in US Treasury bond yields. Early Tuesday, XAU/USD clings to small daily gains at around $2,390.

(This story was corrected on July 30 at 07:53 GMT to say that the USD/JPY gathered bullish momentum in the Asian session on Tuesday, not Monday.) 

GDP FAQs

A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.

A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.

When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.

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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