Forex Today: US Dollar struggles to build on Thursday's gains
Here is what you need to know on Friday, August 16:
The US Dollar (USD) outperformed its rivals on Thursday, boosted by the upbeat macroeconomic data releases from the US. After rising 0.5%, the USD Index stays in a consolidation phase below 103.00 as markets await Housing Starts and Building Permits data for July. Additionally, the University of Michigan will release the preliminary Consumer Sentiment Index 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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.56% | -0.85% | 1.59% | -0.09% | -0.80% | -0.20% | 0.61% | |
| EUR | 0.56% | -0.27% | 2.16% | 0.49% | -0.37% | 0.36% | 1.19% | |
| GBP | 0.85% | 0.27% | 2.68% | 0.74% | -0.13% | 0.62% | 1.46% | |
| JPY | -1.59% | -2.16% | -2.68% | -1.64% | -2.41% | -1.76% | -0.99% | |
| CAD | 0.09% | -0.49% | -0.74% | 1.64% | -0.75% | -0.10% | 0.73% | |
| AUD | 0.80% | 0.37% | 0.13% | 2.41% | 0.75% | 0.72% | 1.55% | |
| NZD | 0.20% | -0.36% | -0.62% | 1.76% | 0.10% | -0.72% | 0.83% | |
| CHF | -0.61% | -1.19% | -1.46% | 0.99% | -0.73% | -1.55% | -0.83% |
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 in the early American session on Thursday after the US Department of Labor reported that the weekly Initial Jobless Claims declined to 227,000 in the week ending August 9. Other data from the US showed that Retail Sales rose 1% on a monthly basis in July after declining by 0.2% in June. The benchmark 10-year US Treasury bond yield recovered above 3.9% after this data and gained more than 2% on the day. As Wall Street's main indexes pushed higher after opening in positive territory, the USD's gains remained limited later in the day. Early Friday, US stock index futures trade modestly higher on the day.
The UK's Office for National Statistics reported earlier in the day that Retail Sales increased 0.5% on a monthly basis in July, matching the market expectation. GBP/USD holds its ground in the European morning and was last seen trading at its highest level in nearly three weeks at around 1.2880.
Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr said during the Asian trading hours on Friday that policymakers are very confident that forward indicators show inflation stabilizing within the 1%-3% target range. After closing the previous two trading days in negative territory, NZD/USD stages a rebound on Friday and trades above 0.6000.
AUD/USD gains traction on the last trading day of the week and rises toward 0.6650. Reserve Bank of Australia Governor Michele Bullock said earlier in the day that the central bank remains focused on the potential upside risks to inflation, adding that it does not expect to cut rates in the near term.
EUR/USD snapped a three-day winning streak on Thursday, pressured by the renewed USD strength. The pair hold its ground early Friday but stays below 1.1000.
Gold failed to gather bullish momentum on Thursday and closed the day with small gains. XAU/USD trades in a relatively tight channel slightly above $2,450 early Friday.
USD/JPY broke out of its horizontal trading range and gained more than 1% on Thursday. The pair stays in a consolidation phase near 149.00 in the European morning.
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.
