Forex Today: US Dollar strengthens on Fed rate hike bets, US-Iran deadlock

Lallalit Srijandorn FXStreet

Here is what you need to know on Monday, May 18:

The US Dollar (USD) gathers strength above 99.25, the highest since April 8, heading into the European trading session. The upside for the Greenback is bolstered by heightened risk aversion and shifting US interest rate expectations.

Market bets for the path of monetary policy from the US Federal Reserve (Fed) continue to shift towards possible rate hikes. Markets are now pricing in nearly a 44.6% probability that the US central bank could raise the interest rates by at least 25 basis points (bps) at its December meeting, according to the CME FedWatch tool.

US Dollar Price Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.06%	-0.13%	0.06%	-0.02%	0.14%	-0.09%	-0.08%
EUR	0.06%		-0.09%	0.13%	0.03%	0.17%	-0.04%	-0.04%
GBP	0.13%	0.09%		0.21%	0.14%	0.27%	0.05%	0.06%
JPY	-0.06%	-0.13%	-0.21%		-0.12%	0.06%	-0.20%	-0.17%
CAD	0.02%	-0.03%	-0.14%	0.12%		0.16%	-0.07%	-0.05%
AUD	-0.14%	-0.17%	-0.27%	-0.06%	-0.16%		-0.21%	-0.19%
NZD	0.09%	0.04%	-0.05%	0.20%	0.07%	0.21%		0.02%
CHF	0.08%	0.04%	-0.06%	0.17%	0.05%	0.19%	-0.02%

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).

US President Donald Trump warned Iran that the "clock is ticking" as talks to bring the war to an end have stalled, per CNBC. Trump ‌is expected to hold a Situation Room meeting on Tuesday with his top national security advisers to discuss the options for military ‌action regarding Iran.

Data released by the National Bureau of Statistics (NBS) earlier on Monday showed that China’s Retail Sales rose 0.2% year-over-year (YoY) in April, versus 1.7% prior. This figure came in worse than the 2.0% expected. Industrial Production climbed 4.1% YoY in the same period, compared to 5.7% in March, below the market consensus of 5.9%.

EUR/USD recovers some lost ground from a six-week low to near 1.1630 in the European morning. Hawkish comments from European Central Bank (ECB) policymakers support the shared currency.

GBP/USD remains on the defensive around 1.3315, pressured by mounting domestic political instability and a severe sell-off in the UK government bond market.

USD/JPY edges higher to near 158.50 in the European morning on Thursday. Reuters reported on Monday that the Japanese government is likely to issue fresh debt as part of ‌funding for a planned extra budget to cushion the economic impact from the Middle East war.

Gold recovers to near $4,550, snapping the four-day losing streak. Nonetheless, the potential upside for the precious metal might be limited amid fears of rising inflation due to the protracted conflict between the US and Iran.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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