Forex Today: US Dollar consolidates weekly gains as focus shifts to key inflation data
Here is what you need to know on Friday, June 28:
The US Dollar Index holds steady at around 106.00 early Friday, fluctuating near the multi-week high it set this week. The Bureau of Economic Analysis (BEA) will release the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's (Fed) preferred gauge of inflation, for May, alongside Personal Spending and Personal Income data, later in the 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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.09% | -0.03% | 0.72% | 0.15% | 0.12% | 0.87% | 0.58% | |
| EUR | 0.09% | 0.08% | 0.90% | 0.29% | 0.23% | 1.00% | 0.74% | |
| GBP | 0.03% | -0.08% | 0.75% | 0.21% | 0.15% | 0.92% | 0.66% | |
| JPY | -0.72% | -0.90% | -0.75% | -0.57% | -0.57% | 0.18% | -0.15% | |
| CAD | -0.15% | -0.29% | -0.21% | 0.57% | -0.03% | 0.71% | 0.46% | |
| AUD | -0.12% | -0.23% | -0.15% | 0.57% | 0.03% | 0.77% | 0.51% | |
| NZD | -0.87% | -1.00% | -0.92% | -0.18% | -0.71% | -0.77% | -0.26% | |
| CHF | -0.58% | -0.74% | -0.66% | 0.15% | -0.46% | -0.51% | 0.26% |
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).
Over the weekend, the first round of the French election will take place. According to the latest IFOP Poll, Marine Le Pen’s National Rally party is seen in the lead in the first round with 36% of votes, while President Emmanuel Macron centrist camp is seen in the third place with 21% of votes, behind the left wing New Popular Front, which is projected to receive 29% of votes.
Major equity indexes in the US closed little changed on Thursday as investors refrained from taking large positions ahead of the first Presidential Debate in the US. Early Friday, US stock index futures trade marginally higher and the benchmark 10-year US Treasury bond yield fluctuates in a tight range at around 4.3%.
In the European morning on Friday, the data from the UK showed that the Gross Domestic Product grew at an annual rate of 0.3% in the first quarter. This reading came in above the previous estimate and the market expectation of 0.2%. After posting small gains on Thursday, GBP/USD struggles to extend its recovery and trades below 1.2650.
EUR/USD snapped a two-day losing streak on Thursday but lost its bullish momentum. Early Friday, the pair fluctuates in a tight channel slightly below 1.0700.
During the Asian trading hours, the data from Japan showed that the Tokyo Consumer Price Index rose 2.3% on a yearly basis in June. This reading followed the 2.2% increase recorded in April. Additionally, the Unemployment Rate held steady at 2.6% in May as forecast. USD/JPY extended its weekly rally and touched a fresh multi-decade high near 161.30 in the early Asian session. The pair seems to have entered a consolidation phase at around 161.00 following the earlier jump. Japan’s Chief Cabinet Secretary Yoshimasa Hayashi repeated on Friday that they will take appropriate steps on excessive moves in foreign exchange markets.
After testing $2,300 on Wednesday, Gold regained its traction and registered strong gains on Thursday. XAU/USD stays relatively quiet and trades above $2,320 in the European morning on Friday.
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.
