Forex Today: Improving risk mood weighs on US Dollar
Here is what you need to know on Wednesday, August 13:
The US Dollar (USD) stays under bearish pressure early Wednesday, with the USD Index staying in the red below 98.00 after posting losses on Tuesday. The economic calendar will not offer any high-impact data releases. Hence, investors will pay close attention to comments from Federal Reserve (Fed) policymakers.
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 British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.52% | -0.71% | -0.03% | 0.06% | -0.41% | -0.40% | -0.60% | |
| EUR | 0.52% | -0.18% | 0.50% | 0.59% | 0.12% | 0.07% | -0.07% | |
| GBP | 0.71% | 0.18% | 0.64% | 0.78% | 0.30% | 0.26% | 0.12% | |
| JPY | 0.03% | -0.50% | -0.64% | 0.14% | -0.33% | -0.29% | -0.41% | |
| CAD | -0.06% | -0.59% | -0.78% | -0.14% | -0.46% | -0.51% | -0.68% | |
| AUD | 0.41% | -0.12% | -0.30% | 0.33% | 0.46% | -0.04% | -0.18% | |
| NZD | 0.40% | -0.07% | -0.26% | 0.29% | 0.51% | 0.04% | -0.14% | |
| CHF | 0.60% | 0.07% | -0.12% | 0.41% | 0.68% | 0.18% | 0.14% |
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).
The data published by the US Bureau of Labor Statistics (BLS) showed on Tuesday that annual inflation, as measured by the change in the Consumer Price Index (CPI), held steady at 2.7% in July. On a monthly basis, the CPI and the core CPI rose by 0.2% and 0.3%, respectively, to match analysts' estimates. On a yearly basis, the core CPI increased by 3.1%, at a faster pace than the 2.9% rise recorded in June. These figures eased fears over tariffs feeding into inflation and boosted expectations for a dovish Fed outlook in the last quarter of the year.
The USD weakened against its rivals with the immediate reaction to the July inflation data and found it difficult to hold its ground later in the day as risk flows dominated the action in financial markets. Wall Street's main indexes started the day on a bullish note and gained more than 1% on a daily basis. The S&P 500 and the Nasdaq Composite indexes both notched record highs. Early Wednesday, US stock index futures trade modestly higher.
EUR/USD gained about 0.5% on Tuesday and continued to stretch higher early Wednesday. At the time of press, the pair was trading in positive territory slightly above 1.1700.
GBP/USD preserves its bullish momentum in the European morning on Wednesday and trades at its highest level in three weeks near 1.3550 after rising 0.5% on Tuesday. The UK's Office for National Statistics will publish the second-quarter Gross Domestic Product data on Thursday.
Following a two-day advance, USD/JPY reversed its direction and registered small losses on Tuesday. The pair stays on the back foot and fluctuates at around 146.50 on Wednesday.
AUD/USD builds on Tuesday's gains and trades at a fresh multi-week high near 0.6550. In the Asian session on Thursday, employment data from Australia will be watched closely by market participants.
After suffering large losses on Monday, Gold found support on Tuesday and ended the day virtually unchanged. XAU/USD struggles to attract buyers in the risk-positive market atmosphere and trades in a narrow range above $3,350.
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.
