Forex Today: Focus shifts to US inflation data as Middle East peace hopes recede
Here is what you need to know on Tuesday, May 12:
The US Dollar (USD) benefits from the souring risk mood early Tuesday as investors grow increasingly worried about the continuation of the ceasefire between the United States (US) and Iran. In the second half of the day, markets will pay close attention to the US Consumer Price Index (CPI) data for April.
US President Donald Trump said late Monday that the ceasefire is "on life support" after Tehran's latest proposal to end the conflict was deemed "unacceptable" because it failed to address nuclear issues. According to the CNN, some Trump aides noted that the president is seriously considering a resumption of combat operations and that the is unlikely to make a decision on how to proceed before he travels to China for a summit with Chinese President Xi Jinping.
Reflecting the risk-averse market atmosphere, the USD Index gains traction and rises toward 98.30, up nearly 0.4% on the day, while US stock index futures lose between 0.1% and 0.6%. Annual inflation in the US is forecast to rise to its highest level since September 2023 at 3.7% in April. In the meantime, crude Oil prices gain traction, with the barrel of West Texas Intermediate rising nearly 3% on the day at around $98.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.32% | 0.72% | 0.24% | 0.20% | 0.43% | 0.32% | 0.34% | |
| EUR | -0.32% | 0.39% | -0.07% | -0.15% | 0.11% | 0.00% | 0.02% | |
| GBP | -0.72% | -0.39% | -0.49% | -0.56% | -0.30% | -0.39% | -0.38% | |
| JPY | -0.24% | 0.07% | 0.49% | -0.07% | 0.16% | 0.06% | 0.07% | |
| CAD | -0.20% | 0.15% | 0.56% | 0.07% | 0.23% | 0.13% | 0.13% | |
| AUD | -0.43% | -0.11% | 0.30% | -0.16% | -0.23% | -0.09% | -0.12% | |
| NZD | -0.32% | 0.00% | 0.39% | -0.06% | -0.13% | 0.09% | 0.00% | |
| CHF | -0.34% | -0.02% | 0.38% | -0.07% | -0.13% | 0.12% | -0.00% |
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).
EUR/USD stays under bearish pressure in the European session on Tuesday and trades slightly below 1.1750, losing about 0.3% on the day.
USD/JPY continues to stretch higher after posting marginal gains on Monday and holds above 157.50. US Treasury Secretary Scott Bessent said on Tuesday that he and Japan’s Prime Minister (PM) Sanae Takaichi both believe that forex volatility is undesirable. "Japanese government bond yields are pricing in perhaps inflation, a short-term blip in inflation that I believe is transient," he argued.
Gold (XAU/USD) struggles to keep its footing after closing in positive territory on Monday and tests $4,700, down more than 0.7% on a daily basis.
GBP/USD declines sharply in the European session on Tuesday and loses about 0.8% near 1.3500.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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.
