Forex Today: US Dollar consolidates gains as US-Iran uncertainty persists
Here is what you need to know on Thursday, June 4:
The US Dollar (USD) gathered strength against its rivals midweek, supported by the upbeat macroeconomic data releases from the United States and a lack of progress in the United States (US) - Iran negotiations. On Thursday, the European economic calendar will feature April Retail Sales data. In the second half of the day, weekly Initial Jobless Claims data from the US will be watched closely by market participants ahead of Friday's critical Nonfarm Payrolls (NFP) report for May.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.49% | 0.35% | 0.35% | 0.90% | 0.63% | 1.86% | 1.43% | |
| EUR | -0.49% | -0.15% | -0.15% | 0.42% | 0.13% | 1.39% | 0.94% | |
| GBP | -0.35% | 0.15% | 0.02% | 0.55% | 0.28% | 1.54% | 1.08% | |
| JPY | -0.35% | 0.15% | -0.02% | 0.57% | 0.32% | 1.52% | 1.07% | |
| CAD | -0.90% | -0.42% | -0.55% | -0.57% | -0.28% | 0.95% | 0.51% | |
| AUD | -0.63% | -0.13% | -0.28% | -0.32% | 0.28% | 1.26% | 0.80% | |
| NZD | -1.86% | -1.39% | -1.54% | -1.52% | -0.95% | -1.26% | -0.46% | |
| CHF | -1.43% | -0.94% | -1.08% | -1.07% | -0.51% | -0.80% | 0.46% |
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 data from the US showed on Thursday that employment in private sector rose by 122K in May. This reading followed the 105K increase reported in April and came in better than the market expectation of 117K. Additionally, the Institute for Supply Management's (ISM) Services Purchasing Managers' Index (PMI) improved to 54.5 in May from 53.6, highlighting an ongoing expansion in the service sector's business activity at an accelerating pace. The USD Index climbed to its highest level since early April above 99.50 following the strong US data before going into a consolidation phase near that level early Thursday. Meanwhile, US stock index futures trade mixed after Wall Street's main indexes closed deep in negative territory on Wednesday.
Israel and Lebanon on Wednesday agreed to renew a ceasefire but said it would require a "complete cessation" of fire by Iran-backed Hezbollah. The agreement was announced in a joint statement after US-led talks in Washington. In the meantime, Iran’s Foreign Minister Abbas Araghchi said that while contact with the US had not been cut off, he added that negotiations to end the Middle East war had made "no tangible progress,” as reported by Aljazeera.
EUR/USD moves sideways at around 1.1600 in the eary European session after losing about 0.3% on Wednesday.
USD/JPY corrects lower and trades below 160.00 following a four-day rally. Japanese Prime Minister Sanae Takaichi said on Wednesday that the authorities stand ready to respond to exchange-rate moves as needed.
Gold stages a rebound and trades above $4,450 after losing more than 1% on Wednesday.
GBP/USD lost more than 0.3% on Wednesday, pressured by the broad-based USD strength. The pair finds it difficult to stage a rebound and trades within a touching distance of 1.3400 in the European morning on Thursday.
While testifying before the Senate Economics Legislation Committee, Reserve Bank of Australia (RBA) Governor Michele Bullock noted that inflation is too high and reiterated that the the board will do what it considers necessary to achieve their mandate to deliver price stability and full employment. Following Wednesday's sharp decline, AUD/USD stays relatively quiet and fluctuates above 0.7100 early Thursday.
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.
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.
