Forex Today: US Dollar rally loses steam as focus shifts to inflation data
Here is what you need to know on Friday, September 26:
Following a two-day rally, the US Dollar (USD) Index stays in a consolidation phase below 98.50 in the European morning on Friday. In the second half of the day, the US Bureau of Economic Analysis (BEA) will publish the Personal Consumption Expenditures (PCE) Price Index data, the Federal Reserve's (Fed) preferred gauge of inflation, for August.
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 | 0.57% | 0.80% | 1.27% | 1.17% | 0.98% | 1.75% | 0.56% | |
| EUR | -0.57% | 0.25% | 0.66% | 0.58% | 0.37% | 1.15% | -0.05% | |
| GBP | -0.80% | -0.25% | 0.36% | 0.35% | 0.14% | 0.92% | -0.24% | |
| JPY | -1.27% | -0.66% | -0.36% | -0.11% | -0.32% | 0.47% | -0.70% | |
| CAD | -1.17% | -0.58% | -0.35% | 0.11% | -0.21% | 0.58% | -0.58% | |
| AUD | -0.98% | -0.37% | -0.14% | 0.32% | 0.21% | 0.79% | -0.38% | |
| NZD | -1.75% | -1.15% | -0.92% | -0.47% | -0.58% | -0.79% | -1.19% | |
| CHF | -0.56% | 0.05% | 0.24% | 0.70% | 0.58% | 0.38% | 1.19% |
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).
The USD gathered strength against its peers in the American session on Thursday, boosted by upbeat macroeconomic data releases. Durable Goods Orders rose by 2.9% on a monthly basis in August and the BEA revised the annualized Gross Domestic Product (GDP) growth for the second quarter to 3.8% from 3.3% in the previous estimate. Additionally, weekly Initial Jobless Claims declined to 218,000 from 232,000 in the previous week. The USD Index gained more than 0.6% on a daily basis and touched its highest level since early September at 98.60 on Thursday.
Meanwhile, US President Donald Trump announced that they will impose a 100% tariff on imports of branded or patented pharmaceutical products from October 1, unless a pharmaceutical company is building a manufacturing plant in the US. Additionally, Trump said that they will be imposing a 50% tariff on all kitchen cabinets, bathroom vanities, and associated products, as well as a 25% tariff on trucks, starting from October 1. US stock index futures trade marginally higher in the European morning on Friday.
The data from Japan showed early Friday that the Tokyo Consumer Price Index rose 2.5% on a yearly basis in September. This print matched August's increase and came in line with the market expectation. Japan trade negotiator Ryosei Akazawa said on Friday that US chip and pharma tariff rates won't exceed those to any other country. Akazawa added that he will continue to analyze the impact of US tariff measures once they become clear. USD/JPY stays relatively quiet and trades below 150.00 in the European morning but it's up nearly 1.5% this week.
The broad-based USD strength forced EUR/USD to stay under bearish pressure on Thursday. After dropping to its weakest level in three weeks below 1.1650, the pair corrects higher but remains below 1.1700 in the European session on Friday.
GBP/USD lost nearly 0.8% on Thursday and touched its lowest level since the first week of August below 1.3330. The pair rebounds slightly early Friday and trades at around 1.3350.
Following Wednesday's correction, Gold found support on Thursday but failed to gather recovery momentum. XAU/USD struggles to find direction in the European morning and fluctuates in a narrow channel below $3,750.
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.
