Forex Today: US Dollar clings to recovery gains as markets assess Fedspeak
Here is what you need to know on Wednesday, May 8:
The US Dollar (USD) stays resilient against its rivals early Wednesday after posting marginal gains on Tuesday. The US economic calendar will feature weekly MBA Mortgage Applications and Wholesale Inventories for March. Meanwhile, market participants will remain focused on comments from Federal Reserve (Fed) policymakers. Additionally, the US Treasury will hold a 10-year note auction later in the American session.
The mixed action in Wall Street's main indexes and some hawkish remarks from Minneapolis Federal Reserve President Neel Kashkari helped the USD find demand in the second half of the day on Tuesday. After closing in positive territory, the USD Index continued to edge higher in the Asian session on Wednesday and was last seen rising nearly 0.2% on the day above 105.50. In the European morning, US stock index futures trade modestly lower and the benchmark 10-year US Treasury bond yield clings to small gains while staying below 4.5%.
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 | -0.20% | -0.48% | -1.43% | -0.61% | -0.49% | -0.36% | -0.47% | |
| EUR | 0.20% | -0.19% | -1.10% | -0.35% | -0.08% | -0.08% | -0.18% | |
| GBP | 0.48% | 0.19% | -0.95% | -0.15% | 0.10% | 0.11% | 0.03% | |
| JPY | 1.43% | 1.10% | 0.95% | 0.81% | 0.94% | 1.09% | 0.94% | |
| CAD | 0.61% | 0.35% | 0.15% | -0.81% | 0.00% | 0.26% | 0.20% | |
| AUD | 0.49% | 0.08% | -0.10% | -0.94% | -0.00% | -0.01% | -0.02% | |
| NZD | 0.36% | 0.08% | -0.11% | -1.09% | -0.26% | 0.01% | -0.06% | |
| CHF | 0.47% | 0.18% | -0.03% | -0.94% | -0.20% | 0.02% | 0.06% |
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).
During the Asian trading hours, Bank of Japan (BoJ) Governor Kazuo Ueda said that the monetary policy was aimed at impaction inflation, rather than the exchange rate of the Japanese Yen. "The Bank of Japan may need to respond via monetary policy if such impact for yen moves affects trend inflation," Ueda added. After closing the first two trading days of the week in the green, USD/JPY continued to edge higher despite these comments and was last seen trading above 155.00.
EUR/USD closed in negative territory on Tuesday and snapped a four-day winning streak. The pair stays on the back foot early Wednesday and trades below 1.0750.
GBP/USD fell nearly 0.5% on Tuesday and extended its slide to below 1.2500 midweek. On Thursday, the Bank of England will announce monetary policy decisions.
Gold failed to build on Monday's recovery gains and closed below $2,320 on Tuesday. XAU/USD stays relatively quiet early Wednesday and stays near Tuesday's closing level.
Gold price gains momentum, despite a firmer US Dollar.
AUD/USD came under bearish pressure on Tuesday as the Reserve Bank of Australia (RBA) adopted a cautious tone with regards to further tightening after leaving policy settings unchanged. The pair stretches lower on Wednesday and was last seen trading below 0.6600.
Australian Dollar extends losses amid less hawkish stance from the RBA.
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.
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.
