|

Forex Today: US Dollar extends pullback to start new week

Here is what you need to know on Monday, August 17:

The US Dollar stays under pressure on Monday after posting losses against its major rivals to end the previous week. In the second half of the day, July Consumer Price Index (CPI) data from Canada will be watched closely by market participants, while the US economic calendar will not offer any high-impact data releases.

US Dollar Price Last 7 Days

The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the weakest against the Australian Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD-0.37%-0.53%0.76%-0.64%-0.81%-0.48%0.38%
EUR0.37%-0.18%1.09%-0.37%-0.51%-0.21%0.67%
GBP0.53%0.18%1.21%-0.20%-0.34%-0.03%0.81%
JPY-0.76%-1.09%-1.21%-1.07%-1.22%-1.05%-0.16%
CAD0.64%0.37%0.20%1.07%-0.15%0.02%1.07%
AUD0.81%0.51%0.34%1.22%0.15%0.30%1.15%
NZD0.48%0.21%0.03%1.05%-0.02%-0.30%0.84%
CHF-0.38%-0.67%-0.81%0.16%-1.07%-1.15%-0.84%

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).

Following the softer-than-expected producer inflation figures on Thursday, the data from the US showed on Friday that Retail Sales contracted by 0.6% on a monthly basis in Friday, missing the market expectation for an increase of 0.1% by a wide margin. Additionally, the University of Michigan's Consumer Sentiment Index dropped to 51 in August's flash estimate from 55.2 in July. The USD Index continues to stretch lower after closing in negative territory on Friday and it was last seen losing 0.2% on the day at 99.43.

Fed repricing builds as softer US data temper 2026 hike expectations

Analysts at BNY note that “softer US data over the last few weeks have reduced rate hike expectations for the rest of 2026,” with markets increasingly questioning the likelihood of any renewed tightening cycle. They argue that “further progress on inflation over the next few months could seal the view that there won’t be a tightening of policy,” effectively locking in the perception that the Federal Reserve (Fed) is done hiking.

Against this backdrop, BNY expects upcoming activity data and communications to play a more nuanced role. The bank says “the PMIs will be watched for confirmation that growth remains resilient even as inflation concerns have moderated, but unless they surprise meaningfully, we doubt they’ll move the rates complex materially.” In a similar vein, it judges that “the FOMC minutes should be useful for gauging the balance of views inside the Committee, but with recent data still fresh in investors’ minds, they’re unlikely to change the market’s broader Fed outlook.”

In the meantime, the Memorandum of Understanding (MoU) signed between Iran and the US is set to expire on Monday with no signs of a broader deal. Crude Oil prices stay relatively quiet in the European morning on Monday. As of writing, the barrel of West Texas Intermediate (WTI) was trading marginally lower on the day at around $81.

USD/CAD stays under modest bearish pressure on Monday and trades at its lowest level since early June near 1.3860.

The data from Japan showed earlier in the day that the Gross Domestic Product (GDP) expanded at an annual rate of 1.1% in the second quarter. This print followed the 1.8% growth recorded in the first quarter and came in well below the market expectation for an expansion of 2%. Despite the disappointing data, USD/JPY stays on the back foot in the European morning and trades in negative territory near 159.00.

EUR/USD preserves its bullish momentum and trades at its highest level in two months, near 1.1600.

GBP/USD continues to edge higher after ending the previous week with small gains and trades at around 1.3550.

Gold shows resilience following last week's choppy action and clings to gains at around $4,400.

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

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.

More from Eren Sengezer
Share:

Editor's Picks

GBP/USD hits fresh three-month highs above 1.3550

GBP/USD stretches north and refreshes three-month highs above 1.3500 in the European session on Monday. The prevalent US Dollar selling bias favors bullish traders and suggests that the path of least resistance for the pair remains to the upside.

EUR/USD extends gains above 1.1600 on USD weakness

EUR/USD extends its advance above 1.1600 in European trading hours on Monday. The US Dollar resumes its downside amid weaker-than-expected US economic data, shifting Fed expectations and fading geopolitical risk premium.

Gold looks to build strength above $4,400 amid fading Fed hike bets

Gold builds on Friday's bounce from the $4,300 neighborhood and attracts some follow-through buyers at the start of a new week. The commodity is now looking to extend momentum above the $4,400 mark, though it remains below the highest level since June 5, touched last Thursday, amid mixed fundamental cues.

Pepe defends a key support amid mixed retail demand

Pepe is up nearly 2% after a 10% decline last week, showing signs of a mild recovery, while broader crypto market risk appetite remains weak. PEPE derivatives data point to a mixed outlook, as Open Interest declines while funding rates turn positive. Technically, PEPE must hold above its $0.00000255 support floor to avoid a downside of over 10%.

Why the Fed replaced the Treasury buyers who left

When Japan moved to defend the Yen, the arrangement that drew the attention was the Federal Reserve's repo facility for foreign monetary authorities, which lets an approved foreign central bank raise dollars by temporarily handing Treasuries to the Fed rather than selling them into the market. The logic was elegant. Japan gets dollars, the Treasury market avoids a forced seller, and American long rates are spared. Coverage treated it as the mechanism that made the intervention work.

Why is Crude Oil priced for a reopening the ships haven't made?
Fourteen vessels crossed the Strait of Hormuz on Tuesday. Before the war, the count ran near 120 a day. In the sessions since the waterway was publicly declared open, Brent has drifted back to $87 and West Texas Intermediate (WTI) to $81, both a little lower again on Wednesday, with daily momentum on each unwound from the top of its range in late July to the low twenties now.