Forex Today: More Fedspeak on the agenda heading into the weekend

Here is what you need to know on Friday, May 17:

Following the sharp decline seen after April inflation data on Wednesday, the US Dollar Index managed to stage a modest rebound on Thursday and closed the day in positive territory. On Friday, Eurostat will release revisions to April Harmonized Index of Consumer Prices (HICP) data. Later in the day, investors will remain focused on comments from Federal Reserve (Fed) officials in the absence of high-impact data releases from the US.

The data published by the US Department of Labor showed on Thursday that there were 222,000 first-time applications for unemployment benefits in the week ending May 11, down from 232,000 in the previous week. In the meantime, several Fed officials spoke on Thursday and called for patience with regards to lowering the policy rate, while acknowledging the progress seen in inflation in April Consumer Price Index (CPI) data. After falling more than 2% on Wednesday, the benchmark 10-yaer US Treasury bond yield gains 0.7% on Thursday and closed the day in the green, helping the US Dollar stay resilient against its rivals. Early Friday, the 10-year US yield stays flat slightly below 4.4% and US stock index futures trade virtually unchanged.

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 New Zealand Dollar.

USD   -0.84% -1.09% -0.05% -0.34% -0.99% -1.54% 0.07%
EUR 0.84%   -0.31% 0.78% 0.48% -0.19% -0.74% 0.90%
GBP 1.09% 0.31%   1.03% 0.78% 0.12% -0.43% 1.21%
JPY 0.05% -0.78% -1.03%   -0.31% -0.91% -1.55% 0.16%
CAD 0.34% -0.48% -0.78% 0.31%   -0.63% -1.22% 0.33%
AUD 0.99% 0.19% -0.12% 0.91% 0.63%   -0.65% 1.08%
NZD 1.54% 0.74% 0.43% 1.55% 1.22% 0.65%   1.64%
CHF -0.07% -0.90% -1.21% -0.16% -0.33% -1.08% -1.64%  

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).

Fed officials stick to cautious tones, but outlook beginning to tease rate cuts.

During the Asian trading hours, the data from China showed that Retail Sales rose 2.3% on a yearly basis in April, missing the market expectation for an increase of 3.8%. On a positive note, Industrial Production expanded 6.7% in the same period and beat analysts' estimate of 5.5%. After closing in the red on Thursday, AUD/USD continued to edge lower and was last seen losing 0.2% on the day at 0.6665.

Australian Dollar struggles as Aussie 10-year yield drops to a monthly low.

Following Wednesday's impressive upsurge, EUR/USD corrected lower on Thursday. The pair stays relatively quiet and fluctuates slightly above 1.0850 in the European morning on Friday.

GBP/USD turned south after testing 1.2700 early Thursday and registered modest daily losses. The pair continues to edge lower toward 1.2650 early European session.

USD/JPY stretches higher on Friday and trades above 155.50 after closing in positive territory on Thursday. 

Gold struggled to build on Wednesday gains and posted small losses on Thursday, pressured by recovering US Treasury bond yields. XAU/USD, however, managed to find a foothold early Friday and was last seen gaining 0.4% on the day at $2,386.

Gold price loses traction, with Fed speakers in focus.

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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