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Forex Today: Eyes on second round of Powell testimony, Fedspeak

Here is what you need to know on Wednesday, July 10:

Major currency pairs continue to trade in familiar ranges midweek as investors' search for the next catalyst continues. Later in the day, Federal Reserve (Fed) Chairman Jerome Powell will deliver the Semi-Annual Monetary Policy Report and respond to questions before the House Financial Services Committee in the second day of his Congressional testimony. Several other Fed policymakers will also be delivering speeches during the American trading hours.

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 New Zealand Dollar.

 USDEURGBPJPYCADAUDNZDCHF
USD 0.17%0.14%0.39%-0.10%0.04%0.74%0.12%
EUR-0.17% 0.18%0.54%0.05%0.03%0.92%0.30%
GBP-0.14%-0.18% 0.33%-0.11%-0.15%0.74%0.11%
JPY-0.39%-0.54%-0.33% -0.49%-0.34%0.50%-0.22%
CAD0.10%-0.05%0.11%0.49% 0.09%0.84%0.23%
AUD-0.04%-0.03%0.15%0.34%-0.09% 0.89%0.25%
NZD-0.74%-0.92%-0.74%-0.50%-0.84%-0.89% -0.63%
CHF-0.12%-0.30%-0.11%0.22%-0.23%-0.25%0.63% 

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).

In his prepared remarks, Powell told the Senate Banking Committee on Tuesday that more good data would strengthen their confidence on inflation, repeating that it will not be appropriate to reduce the policy rate until they have more confidence. Commenting on the latest jobs report, "the most recent labor market data sent a pretty clear signal that the labor market has cooled considerably," he noted. These remarks failed to trigger a noticeable market reaction. The US Dollar Index closed with marginal gains, while major equity indexes in the US ended the day little changed.

During the Asian trading hours, the data from China showed that the Consumer Price Index declined by 0.2% on a monthly basis in June, bringing the annual CPI inflation rate down to 0.2% from 0.3% in May. In the meantime, the Reserve Bank of New Zealand announced that it left the policy rate unchanged at 5.5% as widely expected. The RBNZ said in its policy statement that there are signs suggesting that inflation persistence will ease in line with the fall in capacity pressures and business pricing intentions. NZD/USD turned south following this event and was last seen trading below 0.6100, where it was down more than 0.5% on a daily basis.

EUR/USD registered small losses on Tuesday but managed to hold comfortably above 1.0800. Early Wednesday, the pair trades marginally higher on the day at around 1.0820.

GBP/USD edged lower on Tuesday and ended the day below 1.2800. The pair clings to small gains near this level in the European morning.

Following Monday's sharp decline, Gold staged a technical correction and posted small gains on Tuesday. XAU/USD struggles to gather bullish momentum on Wednesday but remains afloat above $2,370.

USD/JPY edged higher after finding support near 161.00 and closed in positive territory on Tuesday. The pair holds its ground to start the European session and trades at around 161.50.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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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