Forex Today: US Dollar enters consolidation phase ahead of key macroeconomic events

Here is what you need to know on Tuesday, June 11:

The US Dollar Index fluctuates in a tight channel above 105.00 early Tuesday after posting small gains on Monday. The economic calendar will not feature any high-impact data releases. Later in the American session, the US Treasury will hold a 10-year Treasury note auction and the Federal Reserve's (Fed) two-day policy meeting will get underway.

The risk-averse market atmosphere helped the US Dollar (USD) stay resilient against its rivals at the beginning of the week. Meanwhile, investors refrain from taking large positions ahead of Wednesday's Consumer Price Index (CPI) data and the Fed's policy decisions. The US central bank will also release the revised Summary of Economic Projections.

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   0.31% 0.00% 0.28% 0.02% -0.39% -0.36% -0.11%
EUR -0.31%   0.04% 0.22% -0.04% -0.43% -0.42% -0.17%
GBP -0.00% -0.04%   0.32% -0.07% -0.46% -0.45% -0.21%
JPY -0.28% -0.22% -0.32%   -0.26% -0.75% -0.75% -0.34%
CAD -0.02% 0.04% 0.07% 0.26%   -0.38% -0.38% -0.14%
AUD 0.39% 0.43% 0.46% 0.75% 0.38%   0.01% 0.26%
NZD 0.36% 0.42% 0.45% 0.75% 0.38% -0.01%   0.25%
CHF 0.11% 0.17% 0.21% 0.34% 0.14% -0.26% -0.25%  

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, the data from Australia showed that the National Australia Bank's Business Confidence Index dropped to -3 in May from 2 in April. AUD/USD largely ignored this data and was last seen moving sideways in a tight channel slightly above 0.6600.

Australian Dollar remains tepid as investors adopt caution ahead of looming Fed decision.

The UK's Office for National Statistics reported early Tuesday that the ILO Unemployment Rate edged higher to 4.4% in the three months to April, with the Employment Change coming in at -140,000 in the same period. Additionally, annual wage inflation, as measured by the change in the Average Earnings Including Bonus, held steady at 5.9%. GBP/USD lost its traction following the UK labor market data and erased its daily gains. Nevertheless, the pair managed to stabilize above 1.2700.

Pound Sterling edges down due to weak UK Employment, uncertainty ahead of Fed decision.

Following a two-day decline, EUR/USD recovers modestly and trades above 1.0750 in the European morning on Tuesday.

Widening spreads, falling Euro – The Fed won’t help lift sentiment.

USD/JPY closed the first day of the week in positive territory and continued to stretch higher during the Asian trading hours on Tuesday. At the time of press, the pair was trading at its highest level in a week above 157.00.

Gold registered small gains on Monday but struggled to gather bullish momentum. XAU/USD was last seen moving up and down in a narrow band at around $2,300.

Gold price remains on the defensive amid renewed rate jitters, US Dollar demand.

Central banks FAQs

Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.

A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.

Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.


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