Forex Today: Focus shifts to US-Iran talks, PMI data from major economies
Here is what you need to know on Thursday, May 21:
The action in financial markets quiets down early Thursday as investors await the next catalyst. The European economic calendar will feature preliminary May Manufacturing and Services Purchasing Managers' Index (PMI) data for Germany, the Eurozone and the UK. In the second half of the day, weekly Initial Jobless Claims data and PMI reports from the US will be watched closely by market participants.
The US Dollar (USD) failed to build on Tuesday's gains as the market mood improved in the American session on Wednesday. US President Donald Trump said that negotiations with Tehran were in the final stages and noted that they could wait a few days to "get the right answers." However, Trump also reiterated that the situation could escalate quickly if there was no deal. Meanwhile, Iran’s President Masoud Pezeshkian said that they were open to a diplomatic solution but Iran's Revolutionary Guards warned in a statement "if aggression against Iran is repeated, the promised regional war will extend beyond the region this time."
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.03% | -0.83% | 0.17% | 0.07% | 0.39% | -0.23% | 0.04% | |
| EUR | 0.03% | -0.82% | 0.26% | 0.08% | 0.40% | -0.14% | 0.05% | |
| GBP | 0.83% | 0.82% | 1.03% | 0.91% | 1.23% | 0.66% | 0.85% | |
| JPY | -0.17% | -0.26% | -1.03% | -0.16% | 0.14% | -0.46% | -0.17% | |
| CAD | -0.07% | -0.08% | -0.91% | 0.16% | 0.31% | -0.30% | -0.06% | |
| AUD | -0.39% | -0.40% | -1.23% | -0.14% | -0.31% | -0.54% | -0.27% | |
| NZD | 0.23% | 0.14% | -0.66% | 0.46% | 0.30% | 0.54% | 0.17% | |
| CHF | -0.04% | -0.05% | -0.85% | 0.17% | 0.06% | 0.27% | -0.17% |
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).
After posting small losses on Wednesday, the USD Index holds steady above 99.00 early Thursday, while US stock index futures trade marginally lower. The minutes of the Federal Reserve's policy meeting showed late Wednesday that policymakers broadly agreed that inflation risks remain tilted to the upside, particularly against the backdrop of escalating tensions in the Middle East, rising energy prices and lingering tariff pressures.
The data from Australia showed earlier in the day that the Unemployment Rate rose to 4.5% in April from 4.3% in March. In this period, Employment Change was -18.6K, compared to the market expectation of 17.5K. AUD/USD stays under bearish pressure and trades in negative territory near 0.7120 after rising more than 0.6% on Wednesday.
EUR/USD holds steady above 1.1600 in the European morning on Thursday. European Central Bank (ECB) policymaker Olli Rehn said earlier in the day that under adverse circumstances, it might be necessary to raise interest rates to maintain credibility. Citing sources familiar with discussions, Reuters reported late Wednesday that the an ECB rate hike was very likely in June but the bank would remain noncommittal about July, with many policymakers preferring to wait until September projections to decide if a follow-up step is needed.
GBP/USD trades in a narrow channel below 1.3450 following Wednesday's rebound. S&P Global Composite PMI in the UK is forecast to decline to 51.7 in May's flash estimate from 52.6 in April.
USD/JPY declined slightly and snapped a seven-day winning streak on Wednesday. The pair holds steady at around 159.00 in the European morning on Thursday. The data from Japan showed earlier in the day that the Jibun Bank Manufacturing PMI edged lower to 54.5 in May from 55.1 in April, while the Services PMI declined to 50 from 51.
Gold (XAU/USD) gained more than 1% on Wednesday as US Treasury bond yields corrected lower. After rising to $4,570 during the Asian trading hours on Thursday, XAU/USD lost its traction and was last seen trading marginally lower on the day near $4,530.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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.
