Forex Today: Markets subdued to begin week, long weekend in US and Canada
Here is what you need to know on Monday, September 2:
Major currency pairs fluctuate in narrow channels at the beginning of the week. The European economic docket will feature revisions to August HCOB Manufacturing PMI data for the Eurozone and Germany, alongside the S&P Global/CIPS Manufacturing PMI for the UK. Financial markets in the US and Canada will remain closed in observance of the Labor Day holiday.
US Dollar PRICE Last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.18% | 0.62% | 1.46% | -0.10% | 0.29% | -0.05% | 0.09% | |
| EUR | -1.18% | -0.61% | 0.28% | -1.25% | -0.97% | -1.18% | -1.05% | |
| GBP | -0.62% | 0.61% | 0.79% | -0.71% | -0.36% | -0.64% | -0.51% | |
| JPY | -1.46% | -0.28% | -0.79% | -1.52% | -1.07% | -1.25% | -1.26% | |
| CAD | 0.10% | 1.25% | 0.71% | 1.52% | 0.38% | 0.11% | 0.20% | |
| AUD | -0.29% | 0.97% | 0.36% | 1.07% | -0.38% | -0.23% | -0.09% | |
| NZD | 0.05% | 1.18% | 0.64% | 1.25% | -0.11% | 0.23% | 0.12% | |
| CHF | -0.09% | 1.05% | 0.51% | 1.26% | -0.20% | 0.09% | -0.12% |
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).
Inflation in the US, as measured by the change in the Personal Consumption Expenditures (PCE) Price Index, held steady at 2.5% on a yearly basis in July, the US Bureau of Economic Analysis reported ahead of the weekend. The core PCE Price Index, which excludes volatile food and energy prices, rose 0.2% on a monthly basis, as anticipated. The US Dollar (USD) Index extended its recovery on Friday and gained about 1% for the week, closing in positive territory for the first time since mid-July.
EUR/USD lost 1.3% in the previous week, pressured by the broad-based USD strength. The pair struggles to stage a rebound early Monday and was last seen trading at around 1.1050.
GBP/USD continued to decline on Friday and closed the third consecutive day in negative territory. The pair seems to have gone into a consolidation phase below 1.3150 in the European morning on Monday.
The data from China showed earlier in the day that the Caixin Manufacturing PMI edged higher to 50.4 in August from 49.8 in July. This reading came in slightly better than the market expectation of 50. Meanwhile, the Australian Bureau of Statistics reported that Building Permits increased by 10.4% on a monthly basis in July, following the 6.4% decline recorded in June. AUD/USD showed no reaction to these figures and was last seen trading marginally higher on the day near 0.6770.
After rising more than 1% in the previous week, USD/JPY stays relatively quiet early Monday and fluctuates in a narrow band slightly below 146.50.
Gold failed to make a decisive move in either direction and closed virtually unchanged last week. XAU/USD stays under modest bearish pressure to start the week and trades below $2,500.
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.
(This story was corrected on September 2 at 07:53 GMT to say in the first paragraph that the European economic docket will feature revisions to August Manufacturing PMI data only, not Manufacturing and Services PMI data both.)
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.
