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Forex Today: Markets stabilize ahead of mid-tier US data, await news from Trump-Xi summit

Here is what you need to know on Thursday, May 14:

The action in financial markets remain subdued early Thursday as investors step to the sidelines ahead of the next batch of macroeconomic data releases from the United States (US), while also waiting for headlines coming out of the talks between US President Donald Trump and Chinese President Xi Jinping.

The US Dollar (USD) continued to gather strength against its rivals after the US Bureau of Labor Statistics reported on Wednesday that annual producer inflation, as measured by the change in the Producer Price Index (PPI), jumped to 6% in April from 4.3% in March. This print surpassed the market expectation of 4.9% by a wide margin. The USD Index closed the second consecutive day in positive territory before entering a consolidation phase at around 98.50 on Thursday. Later in the session, the US economic calendar will feature Import Price Index, Export Price Index and Retail Sales figures for April, alongside the weekly Initial Jobless Claims data.

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 Japanese Yen.

USDEURGBPJPYCADAUDNZDCHF
USD0.32%0.31%0.81%0.20%-0.48%0.04%0.49%
EUR-0.32%-0.02%0.55%-0.13%-0.81%-0.31%0.17%
GBP-0.31%0.02%0.06%-0.13%-0.82%-0.29%0.18%
JPY-0.81%-0.55%-0.06%-0.67%-1.30%-0.77%-0.28%
CAD-0.20%0.13%0.13%0.67%-0.58%-0.10%0.29%
AUD0.48%0.81%0.82%1.30%0.58%0.53%0.98%
NZD-0.04%0.31%0.29%0.77%0.10%-0.53%0.45%
CHF-0.49%-0.17%-0.18%0.28%-0.29%-0.98%-0.45%

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).

Following the initial talks between Xi and Trump, Chinese state-run news agency Xinhua reported that Trump was told if the Taiwan issue was not handled well, the two countries would clash or even come into conflict, pushing China-US relations into "a very dangerous place." Sides are expected discuss the US conflict with Iran, trade relations, the Ukraine crisis and the Korean peninsula. US stock index futures trade moderately higher in the European session on Thursday.

The data published by the UK's Office for National Statistics (ONS) showed that the Gross Domestic Product expanded at an annual rate of 1.1% in the first quarter. This print came in better than analysts' estimate of 0.8%. On a monthly basis, Industrial Production in the UK contracted by 0.2% in March, while Manufacturing Production grew by 1.2%. GBP/USD showed no reaction to these data and was last seen fluctuating in a tight channel above 1.3500.

USD/JPY stays flat near 158.00 after closing the third consecutive day in positive territory on Wednesday. Kyodo News reported earlier in the day that the Japanese government is mulling to infuse extra budget for fiscal 2026 to counter the pressures of higher Oil prices in an attempt to ease households’ burden.

EUR/USD stabilizes near 1.1700 following a two-day decline. European Central Bank (ECB) Governing Council member Martins Kazaks said in an interview with the public broadcaster LTV on Thursday that the ECB could opt for an interest rate hike if rising oil prices deanchor inflation expectations.

Gold extends its sideways grind near $4,700 after posting small losses on Wednesday.

US Dollar FAQs

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for 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.

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