Here is what you need to know on Tuesday, February 18:
The trading action in foreign exchange markets remains choppy early Tuesday as investors' search for the next catalyst continues. The European economic calendar will feature February ZEW Survey - Economic Sentiment for Germany and the Eurozone. Later in the day, January Consumer Price Index (CPI) data from Canada will be watched closely by market participants.
Following a three-day weekend, bond markets in the US reopened and the yield on the 10-year reference recovered above 4.5% early Tuesday, supporting the US Dollar (USD). After ending the first day of the week virtually unchanged, the USD Index clings to modest daily gains near 107.00 early Tuesday. Several Federal Reserve (Fed) policymakers will be delivering speeches later in the American session.
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 Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.26% | -0.23% | -0.18% | 0.07% | -0.11% | 0.16% | 0.06% | |
| EUR | -0.26% | -0.34% | -0.48% | -0.10% | -0.29% | -0.00% | -0.10% | |
| GBP | 0.23% | 0.34% | -0.06% | 0.25% | 0.11% | 0.34% | 0.24% | |
| JPY | 0.18% | 0.48% | 0.06% | 0.25% | 0.11% | 0.55% | 0.22% | |
| CAD | -0.07% | 0.10% | -0.25% | -0.25% | -0.16% | 0.09% | -0.01% | |
| AUD | 0.11% | 0.29% | -0.11% | -0.11% | 0.16% | 0.28% | 0.19% | |
| NZD | -0.16% | 0.00% | -0.34% | -0.55% | -0.09% | -0.28% | -0.10% | |
| CHF | -0.06% | 0.10% | -0.24% | -0.22% | 0.00% | -0.19% | 0.10% |
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 Reserve Bank of Australia (RBA) announced early Tuesday that it lowered the policy rate by 25 basis points (bps) to 4.1% from 4.35%. This decision came in line with the market expectation. Based on its revised projections, the RBA said that disinflation could stall and inflation would settle above the midpoint of the target range if monetary policy were to be eased too much too soon. In the post-meeting press conference, Governor Michele Bullock noted that further rate cuts implied by the market are not guaranteed. AUD/USD showed no immediate reaction to the RBA event and was last seen trading flat on the day at around 0.6350.
The UK's Office for National Statistics reported early Tuesday that the ILO Unemployment Rate held steady at 4.4% in the three months to December. This reading came in better than the market expectation of 4.5%. Other details of the report showed that the Employment Change was 107,000 in the same period, up sharply from the 35,000 recorded for the previous month. GBP/USD edges slightly higher following the labor market data and trades little changed on the day above 1.2600.
After losing nearly 0.8% last week, USD/CAD stays in a consolidation phase slightly below 1.4200 this week. The CPI in Canada is forecast to rise 1.8% on a yearly basis in January, matching December's increase.
EUR/USD stays under modest bearish pressure but manages to hold above 1.0450 in the European morning on Tuesday.
Gold holds its ground and trades in positive territory above $2,900 after posting modest gains on Monday.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
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