|

Forex Today: Market focus shifts from Middle East to Fed

Here is what you need to know on Wednesday, March 18:

There is a positive shift in market mood midweek, supported by falling crude Oil prices. In the second half of the day, the US economic calendar will feature Producer Price Index (PPI) data for February. More importantly, the Bank of Canada (BoC) and the Federal Reserve (Fed) will announce monetary policy decisions.

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 Australian Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD-0.87%-0.81%-0.49%-0.11%-1.66%-1.12%-0.46%
EUR0.87%0.08%0.31%0.76%-0.79%-0.26%0.41%
GBP0.81%-0.08%0.38%0.68%-0.85%-0.33%0.40%
JPY0.49%-0.31%-0.38%0.39%-1.17%-0.62%0.02%
CAD0.11%-0.76%-0.68%-0.39%-1.59%-1.00%-0.34%
AUD1.66%0.79%0.85%1.17%1.59%0.53%1.21%
NZD1.12%0.26%0.33%0.62%1.00%-0.53%0.64%
CHF0.46%-0.41%-0.40%-0.02%0.34%-1.21%-0.64%

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).

Iran confirmed on Tuesday that Ali Larijani, the secretary of the Supreme National Security Council, who Israel described as "the de facto leader," was killed in an Israeli strike. Early Wednesday, Israel initiated a new wave of strikes on Lebanon's capital Beirut and ordered evacuations, as the US military launched "deep penetrator" bombs targeting Iranian missile sites along the Strait of Hormuz.

Meanwhile, citing North Oil Company sources, Reuters reported that Baghdad and the Kurdistan Regional Government (KRG) reached an agreement to resume crude exports from Iraq's Kirkuk fields to Turkiye's Ceyhan port. After rising more than 2% on Tuesday, the barrel of West Texas Intermediate (WTI) edges lower and trades at around $93, down about 2.5% on the day.

Following an uptick in the first half of the day, the US Dollar (USD) Index reversed its direction in the American session on Tuesday and closed the second consecutive day in negative territory, pressured by the improving risk mood. Early Wednesday, the USD Index holds steady above 99.50, while US stock index futures rise between 0.5% and 0.6%. The Fed is widely expected to leave the policy rate unchanged following the March meeting. Alongside the policy statement, the US central bank will also publish the Summary of Economic projections. Starting at 18:30 GMT, Fed Chair Jerome Powell will hold a press conference.

After failing to make a decisive move in either direction and closing virtually unchanged on Tuesday, USD/CAD trades marginally higher on the day above 1.3700. The BoC is forecast to maintain the policy rate at 2.25%.

Gold remains within a consolidation phase and trades slightly below $5,000 in the European session on Wednesday after struggling to find direction on Monday and Tuesday.

EUR/USD fluctuates in a narrow channel 1.1500 in the European morning on Wednesday. Eurostat will publish revisions to February Harmonized Index of Consumer Prices (HICP) data later in the day. On Thursday, the European Central Bank (ECB) will announce policy decisions.

GBP/USD benefited from risk flows and extended its recovery into a second straight day on Tuesday. The pair holds steady at around 1.3350 early Wednesday. The Bank of England (BoE) is expected to leave the policy rate unchanged on Thursday.

USD/JPY stays under modest bearish pressure in the European morning and trades below 159.00. The Bank of Japan will announce its interest rate decision during the Asian session on Thursday.

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

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.

More from Eren Sengezer
Share:

Editor's Picks

GBP/USD bounces off lows, back above 1.3200

After bottoming out near 1.3160, GBP/USD manages to regain a bit of shine and reclaim the 1.3200 mark and beyond at the end of the week. Stronger-than-expected UK Retail Sales data seem to be helping the British Pound limit its losses, while the chaotic UK political environment keeps the bulls at bay for now.

EUR/USD looks consolidative around 1.1460

EUR/USD stages a modest rebound after slipping to a three-month low below 1.1420 at the end of the week. That said, the pair now looks to consolidate humble gains just above 1.1460 despite growing uncertainty surrounding the next round of US-Iran negotiations, which keeps the US Dollar’s downside contained.

Gold slips back to six-day lows, targets $4,100

Gold retreats for the third consecutive day on Friday, eroding gains seen in the first half of the week and approaching the key $4,100 mark per troy ounce. Indeed, the precious metal continues to face headwinds from the Fed's hawkish stance and renewed uncertainty surrounding the next round of US-Iran negotiations.

Breaking: Iran closes the Strait of Hormuz amid ceasefire deal violation
Iran says it is closing the Strait of Hormuz after accusing the United States (US) and Israel of violating the ceasefire. According to Iran, the decision came over the continued Israeli strikes in Lebanon. The Iranian Revolutionary Guard Corps Navy issued a warning to all vessels: "Do not approach the Strait of Hormuz; otherwise, your security will be jeopardized."
The Iran war didn't break the US economy, but what happens next?

Nearly four months after the start of the Iran war, the US economy remains remarkably resilient. While the conflict initially triggered a severe disruption to global energy markets and a sharp rise in Oil prices, recent diplomatic progress between Washington and Tehran has eased concerns about a prolonged supply shock.

Regime change: Inside Kevin Warsh's first move to make the Fed unreadable on purpose

The rate did not move. That was the least interesting thing about Kevin Warsh's first meeting in charge of the Fed. The FOMC held its benchmark at 3.50%-3.75% for the fourth straight meeting, exactly as priced, and then the new chair used his first press conference to dismantle the machinery the market has leaned on for a decade.

Forex Today: Market focus shifts from Middle East to Fed