Forex Today: US Dollar holds ground to start the new week

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

The US Dollar (USD) stays resilient against its major rivals at the beginning of the week, with the US Dollar Index clinging to modest gains above 105.50 after closing the previous week in positive territory. In the absence of high-tier macroeconomic data releases, investors will pay close attention to comments from central bankers. 

After struggling to find demand on soft US inflation data in the middle of the previous week, the USD benefited from the Federal Reserve's hawkish tone and the risk-averse market atmosphere. Early Monday, US stock index futures trade virtually unchanged on the day and the benchmark 10-year US Treasury bond yield holds steady above 4.2%. 

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 strongest against the Euro.

USD   0.97% 0.40% 0.35% -0.13% -0.23% -0.11% -0.75%
EUR -0.97%   -0.22% -0.37% -0.84% -0.92% -0.82% -1.45%
GBP -0.40% 0.22%   -0.02% -0.61% -0.70% -0.60% -1.24%
JPY -0.35% 0.37% 0.02%   -0.46% -0.63% -0.54% -1.02%
CAD 0.13% 0.84% 0.61% 0.46%   -0.06% 0.02% -0.63%
AUD 0.23% 0.92% 0.70% 0.63% 0.06%   0.10% -0.54%
NZD 0.11% 0.82% 0.60% 0.54% -0.02% -0.10%   -0.65%
CHF 0.75% 1.45% 1.24% 1.02% 0.63% 0.54% 0.65%  

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 China showed that Retail Sales expanded 3.7% on a yearly basis in May. This reading followed the 2.3% increase recorded in April and came in better than the market expectation for an increase of 3%. On a negative note, Industrial Production grew 5.6% in the same period, falling short of analysts' estimate for an increase of 6%. The Shanghai Composite Index is down more than 0.5% after the mixed Chinese data, while Hong Kong's Hang Seng Index stays flat on the day.

ANZ Job Advertisements in Australia declined 2.1% on a monthly basis in May. After closing the last two trading days of the previous week in negative territory, AUD/USD continues to edge lower in the early European session on Monday and was last seen trading near 0.6600. The Reserve Bank of Australia (RBA) will announce monetary policy decisions in the early Asian session on Tuesday.

Australian Dollar remains on the defensive near 0.6600 as Fed pencils one rate cut this year.

EUR/USD lost nearly 1% in the previous week, pressured by the broad-based USD strength. The pair struggles to stage a rebound in the early European session and trades at around 1.0700.

GBP/USD stays under modest bearish pressure and trades below 1.2700 after closing the second straight week in the red. The UK's Office for National Statistics will release inflation data on Wednesday before the Bank of England announces monetary policy decisions on Thursday.

USD/JPY reached its highest level since late April above 158.00 on Friday as the Japanese Yen struggled to find demand following the Bank of Japan's decisions to hold policy settings unchanged. After staging a downward correction heading into the weekend, the pair seems to have stabilized at around 157.50 to begin the new week.

Gold gathered bullish momentum and gained more than 1% on a daily basis on Friday, ending the week in positive territory and snapping a three-week losing streak. XAU/USD, however, lost its traction in the Asian trading hours and retreated below $2,320 on Monday, where it was down more than 0.5% on the day.

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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