Forex Today: Risk recovery loses steam ahead of mid-tier data releases
Here is what you need to know on Thursday, March 13:
Following the improvement seen in market sentiment on Wednesday, investors adopt a cautious stance early Thursday. Eurostat will publish Industrial Production data for January and the US economic calendar will feature weekly Initial Jobless Claims and February Producer Price Index (PPI) data later in the day.
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 Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.40% | -0.25% | -0.06% | 0.18% | 0.11% | 0.13% | 0.25% | |
| EUR | 0.40% | 0.11% | 0.32% | 0.59% | 0.61% | 0.51% | 0.53% | |
| GBP | 0.25% | -0.11% | 0.15% | 0.45% | 0.49% | 0.34% | 0.49% | |
| JPY | 0.06% | -0.32% | -0.15% | 0.24% | 0.24% | 0.11% | 0.39% | |
| CAD | -0.18% | -0.59% | -0.45% | -0.24% | -0.10% | -0.05% | 0.04% | |
| AUD | -0.11% | -0.61% | -0.49% | -0.24% | 0.10% | -0.10% | -0.01% | |
| NZD | -0.13% | -0.51% | -0.34% | -0.11% | 0.05% | 0.10% | 0.20% | |
| CHF | -0.25% | -0.53% | -0.49% | -0.39% | -0.04% | 0.01% | -0.20% |
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).
Reflecting the risk-averse market atmosphere, US stock index futures were last seen losing between 0.2% and 0.7% on the day. Meanwhile, the US Dollar (USD) Index holds steady above 103.50 after having snapped a seven-day losing streak on Wednesday. The US Bureau of Labor Statistics reported midweek that annual inflation in the US, as measured by the change in the Consumer Price Index (CPI), softened to 2.8% in February from 3% in January. On a monthly basis, the core CPI, which excludes volatile food and energy prices, rose 0.2%.
The Bank of Canada (BoC) announced on Wednesday that it lowered the policy rate by 25 basis points to 2.75% as anticipated. "Heightened trade tensions and US tariffs will likely increase inflationary pressures in Canada and curb growth," the BoC noted in its policy statement. After falling nearly 0.5% on Wednesday, USD/CAD stays trades marginally higher on the day, at around 1.4400.
EUR/USD corrected lower and lost about 0.3% on Wednesday. The pair struggles to gather bullish momentum and trades below 1.0900 in the European morning on Thursday.
GBP/USD failed to make a decisive move in either direction and ended the day virtually unchanged on Wednesday. The pair extends its sideways grind at around 1.2950 early Thursday.
The data from Australia showed early Thursday that Consumer Inflation Expectations declined to 3.6% in March from 4.6%. After posting small gains on Wednesday, AUD/USD edges lower and fluctuates near 0.6300 to begin the European session.
Following a two-day rebound, USD/JPY turns south early Thursday and trades below 148.00. Bank of Japan (BoJ) Governor Kazuo Ueda said on Thursday that Japan's underlying inflation is "still somewhat below 2%."
Gold managed to build on Tuesday's rebound and gained more than 0.5% on Wednesday. XAU/USD trades above $2,930 in the European morning.
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.
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.
