Forex Today: Focus shifts to mid-tier US data, FOMC Minutes, after UK inflation and RBNZ cut
Here is what you need to know on Wednesday, February 19:
Investors observe heightened volatility in some currencies early Wednesday following key data releases and central bank decisions. In the second half of the day, Housing Starts and Building Permits data for January will be featured in the US economic docket. Later in the American session, the Federal Reserve (Fed) will release the minuted of the January policy meeting.
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 weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.38% | -0.24% | -0.36% | 0.02% | -0.18% | -0.08% | 0.41% | |
| EUR | -0.38% | -0.46% | -0.79% | -0.26% | -0.47% | -0.35% | 0.13% | |
| GBP | 0.24% | 0.46% | -0.23% | 0.21% | 0.04% | 0.11% | 0.60% | |
| JPY | 0.36% | 0.79% | 0.23% | 0.37% | 0.21% | 0.50% | 0.75% | |
| CAD | -0.02% | 0.26% | -0.21% | -0.37% | -0.18% | -0.10% | 0.38% | |
| AUD | 0.18% | 0.47% | -0.04% | -0.21% | 0.18% | 0.12% | 0.62% | |
| NZD | 0.08% | 0.35% | -0.11% | -0.50% | 0.10% | -0.12% | 0.49% | |
| CHF | -0.41% | -0.13% | -0.60% | -0.75% | -0.38% | -0.62% | -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).
US President Donald Trump said late Tuesday that they are looking to impose auto tariffs "in the neighborhood of 25%" as early as April 2. He further added that they are also planning to charge similar duties on pharmaceutical and semiconductor imports. The US Dollar (USD) Index edged slightly higher in the American session and registered small gains for the day. Early Wednesday, the USD Index holds steady near 107.00.
The Reserve Bank of New Zealand (RBNZ) announced in the Asian session on Wednesday that it lowered the policy rate by 50 basis points (bps) to 3.75% from 4.25%, as anticipated. In the policy statement, the RBNZ noted that they have confidence to continue to lower rates and Governor Adrian Orr explained afterward that the policy rate is projected to be lowered by another 50 bps by July. After dropping to a daily low of 0.5677 with the immediate reaction to RBNZ announcements, NZD/USD regained its traction and was last seen trading in positive territory above 0.5700.
The UK's Office for National Statistics reported early Wednesday that inflation in the UK, as measured by the change in the Consumer Price Index (CPI), climbed to 3% in January from 2.5% in December. In the same period, the core CPI increased by 3.7%, as anticipated. Other details of the report showed that the Retail Price Index declined by 0.1% on a monthly basis. GBP/USD holds steady above 1.2600 following these data releases.
EUR/USD lost about 0.4% on Tuesday but managed to find a foothold. In the European morning on Wednesday, the pair trades in a tight range at around 1.0450.
After snapping a three-day losing streak on Tuesday, USD/JPY came under renewed bearish pressure and declined below 152.00 on Wednesday. Bank of Japan (BoJ) Board Member Hajime Takata said on Wednesday that the BoJ must gradually shift policy, even after January's rate hike, to avoid upside price risks from materializing.
Gold gathered bullish momentum and rose more than 1% on Tuesday. XAU/USD stays in a consolidation phase above $2,930 on Wednesday and remains within a touching distance of the all-time high it set at $2,942 earlier this month.
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
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.
