Forex Today: PMI reports from major economies to drive markets

Here is what you need to know on Friday, June 21:

The US Dollar (USD) stays resilient early Friday after posting gains against its major rivals on Thursday. S&P Global will release preliminary June Manufacturing and Services PMI reports for Germany, the UK, the Eurozone and the US later in the day. May Existing Home Sales from the US and May Retail Sales data from Canada will also be watched closely by market participants ahead of the weekend.

The negative shift seen in risk mood helped the USD gather strength in the American session on Thursday. After edging lower in the first three days of the week, the USD Index gained 0.4% on Thursday and erased all of this week's losses. In the European morning, the USD Index holds steady slightly above 105.50. Meanwhile, US stock index futures trade marginally higher and the benchmark 10-year US Treasury bond yield continues to fluctuate above 4.2%. 

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.

USD   -0.07% 0.23% 1.02% -0.45% -0.69% 0.13% 0.13%
EUR 0.07%   0.32% 1.11% -0.38% -0.72% 0.25% 0.20%
GBP -0.23% -0.32%   0.87% -0.70% -1.05% -0.10% -0.09%
JPY -1.02% -1.11% -0.87%   -1.35% -1.69% -0.73% -0.82%
CAD 0.45% 0.38% 0.70% 1.35%   -0.31% 0.59% 0.60%
AUD 0.69% 0.72% 1.05% 1.69% 0.31%   1.03% 0.96%
NZD -0.13% -0.25% 0.10% 0.73% -0.59% -1.03%   0.00%
CHF -0.13% -0.20% 0.09% 0.82% -0.60% -0.96% -0.01%  

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).

The Bank of England (BoE) left its monetary policy settings unchanged following the June meeting, as expected. The optimistic tone on inflation outlook, however, made it difficult for Pound Sterling to find demand. GBP/USD broke below 1.2700 and closed the day deep in negative territory on Thursday. Early Friday, the pair consolidates its losses slightly above 1.2650. In the meantime, the UK's Office for National Statistics reported that Retail Sales rose 2.9% on a monthly basis in May. This reading surpassed the market expectation for a 1.5% increase by a wide margin.

During the Asian trading hours, the data from Japan showed that the National Consumer Price Index (CPI) rose 2.8% on a yearly basis in May, following the 2.5% increase recorded in April. USD/JPY gained more than 0.5% on Thursday and continued to stretch higher in the Asian session on Friday. At the time of press, the pair was trading at its highest level since April 29, when the Bank of Japan (BoJ) intervened in foreign exchange (FX) markets, at around 159.00. Japanese Finance Minister Shunichi Suzuki said on Friday that he will work with colleagues to mitigate damage to economies from FX fluctuations, adding excessive and disorderly FX moves could hurt economies.

Judo Bank Manufacturing PMI in Australia declined to 47.5 in June's flash estimate from 49.7 in May. Services PMI edged lower to 51.0 from 52.5. These readings failed to trigger a noticeable reaction in AUD/USD and the pair was last seen trading in a tight range slightly above 0.6650.

EUR/USD closed in negative territory on Thursday but managed to stabilize above 1.0700 in the European morning on Friday.

Gold benefited from escalating geopolitical tensions and gained more than 1% on Thursday to reach a fresh two-week high above $2,360. Early Friday, XAU/USD stays in a consolidation phase at around $2,360.

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.


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