Forex Today: Focus remains on Fedspeak in absence of high-impact data

Here is what you need to know on Monday, May 13:

Financial markets remain quiet to start the new week and major currency pairs fluctuate near the previous week's closing levels. The economic calendar will not offer any high-tier data releases on Monday and investors will continue to scrutinize comments from central bank officials.

The US Dollar (USD) Index recovered modestly on Friday after declining sharply on Thursday, supported by Federal Reserve (Fed) policymakers' hawkish tone. In the early European morning on Monday, the USD Index holds steady above 105.00 and the benchmark 10-year US Treasury bond yield moves sideways near 4.5%. In the meantime, US stock index futures trade modestly higher.

US Dollar PRICE Last 7 days

The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the weakest against the Japanese Yen.

USD   0.11% -0.15% -1.81% -0.07% -0.17% -0.07% -0.22%
EUR -0.11%   -0.17% -1.80% -0.11% -0.07% -0.10% -0.23%
GBP 0.15% 0.17%   -1.64% 0.05% 0.09% 0.06% -0.04%
JPY 1.81% 1.80% 1.64%   1.70% 1.63% 1.74% 1.61%
CAD 0.07% 0.11% -0.05% -1.70%   -0.20% 0.02% -0.06%
AUD 0.17% 0.07% -0.09% -1.63% 0.20%   -0.05% -0.10%
NZD 0.07% 0.10% -0.06% -1.74% -0.02% 0.05%   -0.08%
CHF 0.22% 0.23% 0.04% -1.61% 0.06% 0.10% 0.08%  

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).

Following Thursday's upsurge, EUR/USD retreated Friday but managed to post small gains for the week. In the early European session on Monday, the pair stays in a consolidation phase above 1.0750.

After falling to its lowest level in two weeks below 1.2450 on Thursday, GBP/USD reversed its direction and closed the week above 1.2500. The pair moves up and down in a narrow band above that level to start the new week. The UK's Office for National Statistics will release labor market data early Tuesday.

The data from Australia showed in the Asian session that National Australia Bank's Business Conditions Index edged lower to 7 in April from 9 in March, while the Business Confidence Index remained unchanged at 1. AUD/USD showed no reaction to these figures and was last seen moving sideways near 0.6600. Over the weekend, the National Bureau of Statistics of China reported that the Consumer Price Index (CPI) rose 0.3% on a yearly basis in April, surpassing the market expectation and March's increase of 0.1%. 

Australian Dollar holds ground around a psychological level, awaits Aussie Budget Release.

USD/JPY trades slightly below 156.00 after rising nearly 2% in the previous week. In the early Asian trading hours of the Asian session on Tuesday, the Producer Price Index for April will be featured in the Japanese economic calendar.

Gold gained 2.5% and snapped a two-week losing streak. XAU/USD stages a downward correction early Monday and trades at around $2,350. 

Gold price loses traction, eyes on Fedspeak.

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.


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