Forex Today: US Dollar edges higher as focus shifts to PMI data
Here is what you need to know on Thursday, August 21:
The US Dollar (USD) stays resilient against its rivals early Thursday as investors gear up for key activity data from major economies. In the European session, preliminary Manufacturing and Services Purchasing Managers' Index (PMI) data from Germany, the Eurozone and the UK will be watched closely by market participants. Later in the day, the US economic calendar will offer weekly Initial Jobless Claims, Existing Home Sales data for July and the same PMI releases.
The minutes of the Federal Reserve's (Fed) July policy meeting showed on Wednesday that almost all participants saw it appropriate to leave the policy rate unchanged. According to the publication, participants noted it would take time to have more clarity on the magnitude and persistence of higher tariffs’ effects on inflation.
The USD Index closed marginally lower on Wednesday before starting to stretch higher early Thursday. At the time of press, the index was up 0.2% on the day near 98.40. Meanwhile, United States (US) President Donald Trump called on Fed Governor Lisa Cook to resign after Bloomberg reported that the director of the Federal Housing Finance Agency is urging Attorney General Pam Bondi to investigate Cook over a pair of mortgages. Following Wednesday's mixed action in Wall Street, US stock index remain virtually unchanged in the European morning on Thursday.
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 | 0.74% | 0.83% | 0.27% | 0.45% | 1.40% | 1.82% | 0.09% | |
| EUR | -0.74% | 0.08% | -0.45% | -0.28% | 0.67% | 1.04% | -0.64% | |
| GBP | -0.83% | -0.08% | -0.62% | -0.36% | 0.59% | 0.96% | -0.76% | |
| JPY | -0.27% | 0.45% | 0.62% | 0.19% | 1.13% | 1.56% | -0.19% | |
| CAD | -0.45% | 0.28% | 0.36% | -0.19% | 0.93% | 1.36% | -0.40% | |
| AUD | -1.40% | -0.67% | -0.59% | -1.13% | -0.93% | 0.37% | -1.34% | |
| NZD | -1.82% | -1.04% | -0.96% | -1.56% | -1.36% | -0.37% | -1.73% | |
| CHF | -0.09% | 0.64% | 0.76% | 0.19% | 0.40% | 1.34% | 1.73% |
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).
In the Asian session, the data from Australia showed that the S&P Global Composite PMI improved to 54.9 in early August from 53.8 in July, showing that the business activity in the private sector continued to expand at an accelerating pace. After losing about 0.3% on Wednesday, AUD/USD stays under bearish pressure and trades at its lowest level since late June at around 0.6420.
In Japan, Jibun Bank Manufacturing PMI edged higher to 49.9 in August from 48.9 in July, while the Jibun Bank Services PMI declined to 52.7 from 53.6. USD/JPY holds its ground in the European session on Thursday and clings to moderate gains above 147.50.
GBP/USD failed to benefit from the UK inflation data and closed the third consecutive day in negative territory on Wednesday. The pair continues to push lower early Thursday and trades below 1.3450.
After closing unchanged for two straight days, EUR/USD stays on the back foot in the European morning and trades below 1.1650.
Gold rose nearly 1% on Wednesday as the benchmark 10-year US Treasury bond yield turned south. XAU/USD struggles to build on its recovery gains and trades below $3,340 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.
