Forex Today: Major pairs stabilize as market focus remains on central bank commentary

Here is what you need to know on Tuesday, May 21:

Major currency pairs continue to fluctuate in familiar ranges early Tuesday after closing the first day of the week with small changes. Eurostat will release Current Account and Trade Balance data for March. Later in the session, Statistics Canada will publish Consumer Price Index (CPI) figures for April. More importantly, Bank of England (BoE) Governor Andrew Bailey and Federal Reserve officials Christopher Waller, John Williams, Raphael Bostic and Loretta Mester will be delivering speeches. 

In the absence of high-tier data releases, investors refrained from taking large positions on Monday. Wall Street's main indexes closed the day mixed, the US Dollar (USD) Index posted marginal gains and the benchmark 10-year US Treasury bond yield edged slightly to end the day above 4.4%. Early Tuesday, the USD Index moves sideways at around 104.50 and US stock index futures trade virtually unchanged on the day.

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 Canadian Dollar.

USD   -0.06% -0.08% -0.12% 0.03% 0.00% -0.00% -0.07%
EUR 0.06%   -0.02% -0.03% 0.07% 0.06% 0.04% -0.00%
GBP 0.08% 0.02%   -0.06% 0.10% 0.09% 0.06% 0.01%
JPY 0.12% 0.03% 0.06%   0.16% 0.12% 0.10% 0.06%
CAD -0.03% -0.07% -0.10% -0.16%   -0.02% -0.04% -0.09%
AUD 0.00% -0.06% -0.09% -0.12% 0.02%   -0.02% -0.05%
NZD 0.00% -0.04% -0.06% -0.10% 0.04% 0.02%   -0.06%
CHF 0.07% 0.00% -0.01% -0.06% 0.09% 0.05% 0.06%  

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).

During the Asian trading hours, the Reserve Bank of Australia (RBA) published the minutes of its May monetary policy meeting, highlighting that the board members considered whether to raise rates and judged the case for steady policy as the stronger one. Additional details of the publication showed that the board agreed it was difficult to either rule in or rule out future changes in the cash rate, per Reuters. AUD/USD showed no immediate reaction to the RBA Minutes and was last seen trading marginally lower on the day at around 0.6660.

EUR/USD struggled to build on the previous week's gains and posted small losses on Monday. The pair holds steady above 1.0850 in the European morning on Tuesday.

GBP/USD moved up and down in a narrow channel and closed a few pips above 1.2700 on Monday. The pair registers small losses near 1.2720 in the early European session.

After setting a new all-time high of $2,450 at the beginning of the week, Gold erased a large portion of its gains to close below $2,430 on Monday. XAU/USD stays under bearish pressure early Tuesday and trades below $2,420.

NZD/USD seems to have stabilized at around 0.6100 after losing nearly 0.5% on Monday. The Reserve Bank of New Zealand will announce monetary policy decisions in the early trading hours of the Asian session on Wednesday.

USD/JPY edged higher on Monday and ended the day above 156.00. The pair stays in a consolidation phase at around this level early Tuesday.

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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