Forex Today: Markets await US inflation data, BoC rate decision
Here is what you need to know on Wednesday, June 10:
Financial markets stay relatively quiet early Wednesday as investors gear up for key events. Later in the day, the US Bureau of Labor Statistics (BLS) will publish the Consumer Price Index (CPI) data for May. Additionally, the Bank of Canada (BoC) will announce monetary policy decisions.
Following the rally seen in the previous week, the US Dollar (USD) Index registered marginal losses both on Monday and Tuesday. In the European morning on Wednesday, the USD Index stays below 100.00, while US stock index futures lose between 0.15% and 0.5% on the day, reflecting a cautious market stance. On a yearly basis, the annual CPI inflation in the US is forecast to rise to 4.2% in May from 3.8% in April.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.32% | -0.44% | 0.02% | 0.02% | 0.06% | -0.53% | 0.22% | |
| EUR | 0.32% | -0.16% | 0.41% | 0.34% | 0.38% | -0.21% | 0.54% | |
| GBP | 0.44% | 0.16% | 0.52% | 0.48% | 0.54% | -0.06% | 0.70% | |
| JPY | -0.02% | -0.41% | -0.52% | -0.04% | 0.02% | -0.60% | 0.24% | |
| CAD | -0.02% | -0.34% | -0.48% | 0.04% | 0.11% | -0.56% | 0.19% | |
| AUD | -0.06% | -0.38% | -0.54% | -0.02% | -0.11% | -0.58% | 0.16% | |
| NZD | 0.53% | 0.21% | 0.06% | 0.60% | 0.56% | 0.58% | 0.76% | |
| CHF | -0.22% | -0.54% | -0.70% | -0.24% | -0.19% | -0.16% | -0.76% |
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).
In the meantime, tensions in the Middle East remain high. The US Central Command said late Tuesday it launched retaliatory strikes against Iran following the downing of an American helicopter earlier in the week. According to Axios, the US military is targeting Iranian air defence and radar systems in south of Iran.
Iran's Islamic Revolutionary Guard Corps (IRGC) announced that they are ready for a decisive response to any further US attacks and said that they targeted Ali Al Salem Air Base in Kuwait with drones. Citing a US official, Reuters reported that the US struck nearly 20 targets and nearly all missiles and drones launched by Iran were intercepted.
During the Asian trading hours, the data from China showed that the annual CPI inflation held steady at 1.2% in May. However, the Producer Price Index (PPI) rose by 3.9% on a yearly basis, up sharply from the 2.8% increase recorded in April. After posting small losses on Tuesday, AUD/USD fluctuates in a tight range at around 0.7020 in the European morning on Wednesday.
USD/CAD touched its highest level in six months near 1.3970 on Tuesday but corrected lower to close the day flat. The pair trades in a narrow band below 1.3950 early Wednesday. The BoC is widely expected to keep the policy rate unchanged at 2.25% after the June policy meeting but investors will pay close attention to the language of the policy statement, especially around the inflation outlook and the potential for policy tightening in the near future.
Gold remains under bearish pressure after losing more than 1% on Tuesday and trades at its lowest level since late March at around $4,200.
EUR/USD holds its ground and trades near 1.1550 after registering small gains on Tuesday. On Thursday, the European Central Bank (ECB) will announce monetary policy decisions.
Following Tuesday's modest rebound, GBP/USD continues to inch higher early Wednesday and trades near 1.3400.
USD/JPY continues to move sideways above 160.00 in the European session on Wednesday. The data from Japan showed that the PPI rose 6.3% on a yearly basis in May, surpassing the 5.3% increase seen in April and the market expectation of 5.5%.
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.
