Forex Today: US Dollar stabilizes as market focus shifts to comments from Fed officials
Here is what you need to know on Tuesday, October 7:
The US Dollar (USD) stays resilient against its peers early Tuesday after starting the week on a bullish note. During the American trading hours, several policymakers from the Federal Reserve (Fed) and the European Central Bank (ECB) will be delivering speeches. Meanwhile, investors will continue to pay close attention to political developments in France and the US.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.31% | -0.03% | 0.78% | -0.01% | -0.20% | 0.04% | 0.07% | |
| EUR | -0.31% | -0.45% | 0.39% | -0.36% | -0.54% | -0.31% | -0.27% | |
| GBP | 0.03% | 0.45% | 0.95% | 0.09% | -0.09% | 0.14% | 0.18% | |
| JPY | -0.78% | -0.39% | -0.95% | -0.75% | -1.03% | -0.81% | -0.76% | |
| CAD | 0.01% | 0.36% | -0.09% | 0.75% | -0.14% | 0.05% | 0.08% | |
| AUD | 0.20% | 0.54% | 0.09% | 1.03% | 0.14% | 0.24% | 0.27% | |
| NZD | -0.04% | 0.31% | -0.14% | 0.81% | -0.05% | -0.24% | 0.04% | |
| CHF | -0.07% | 0.27% | -0.18% | 0.76% | -0.08% | -0.27% | -0.04% |
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 Senate again rejected Democratic and Republican proposals to restore funding to the government on Monday. US President Donald Trump warned that another failed vote could trigger layoffs in the federal workforce but added that they were discussing with Democrats regarding their demand to extend Obamacare subsidies past the end of the year. The USD Index retreated from the 10-day high it set near 98.50 late in the American session but closed in positive territory on Monday. The index gains traction in the European morning and was last seen rising 0.2% at 98.30. In the meantime, US stock index futures lose between 0.1% and 0.2%.
The Euro (EUR) came under strong selling pressure on Monday after France’s newly appointed Prime Minister Sebastien Lecornu has announced his resignation. French President Emmanuel Macron will now either appoint a new Prime Minister or dissolve parliament and call a new parliamentary election. There is also a possibility of Macron resigning. EUR/USD stays on the back foot in the European session and trades below 1.1700.
Growing optimism about more government spending and a more expansionary fiscal policy under the new Prime Minister Sanae Takaichi lifted Japan's Nikkei 225 Index to a new record high on Tuesday. After rising nearly 2% on Monday, USD/JPY continues to stretch higher and was last seen trading above 150.50. Commenting on the JPY weakness, Japanese Finance Minister Katsunobu Kato said on Tuesday that he will closely monitor the foreign exchange (FX) moves, adding that it’s important for currencies to move in a stable manner reflecting fundamentals.
GBP/USD closed virtually unchanged on Monday as Pound Sterling managed to hold its ground against the USD, by capturing capital outflows out of the EUR. In fact, the EUR/GBP cross lost about 0.3% on the day and touched its weakest level since mid-September near 0.8670. Early Tuesday, GBP/USD edges lower and trades near 1.3450.
Gold gained nearly 2% on Monday and set a new record-high above $3,970 in the Asian session on Tuesday. XAU/USD corrects lower toward $3,950 in the European session.
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.
