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Forex Today: US Dollar tries to find support following last week's selloff

Here is what you need to know on Monday, August 26:

The US Dollar (USD) holds steady against its major rivals early Monday after having suffered heavy losses in the previous week. IFO sentiment data from Germany will be featured in the European docket. Later in the day, Durable Goods Orders data for July and Dallas Fed Manufacturing Business Index data for August from the US will be watched closely by market participants.

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 weakest against the Japanese Yen.

 USDEURGBPJPYCADAUDNZDCHF
USD -1.37%-1.89%-2.67%-1.25%-1.53%-2.61%-2.14%
EUR1.37% -0.60%-1.29%0.12%-0.24%-1.42%-0.81%
GBP1.89%0.60% -0.85%0.70%0.35%-0.76%-0.21%
JPY2.67%1.29%0.85% 1.38%1.14%0.18%0.40%
CAD1.25%-0.12%-0.70%-1.38% -0.31%-1.30%-0.94%
AUD1.53%0.24%-0.35%-1.14%0.31% -1.03%-0.57%
NZD2.61%1.42%0.76%-0.18%1.30%1.03% 0.49%
CHF2.14%0.81%0.21%-0.40%0.94%0.57%-0.49% 

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 came under heavy selling pressure on Friday after Federal Reserve (Fed) Chairman Jerome Powell delivered a dovish speech. Powell said that the time has come for the monetary policy to adjust while delivering opening remarks at the annual Jackson Hole Economic Symposium. "We will do everything we can to support a strong labor market as we make further progress toward price stability," he added. The USD Index fell 0.8% on Friday and lost 1.7% for the week, while the benchmark 10-year US Treasury bond yield fell nearly 1.5% following Powell's speech. Early Monday, the 10-year yield stays in negative territory below 3.8% and the USD Index fluctuates in a tight channel at around 100.70.

Reuters reported over the weekend that Hezbollah launched hundreds of rockets and drones at Israel early on Sunday, as Israel's military said it carried out a wave of pre-emptive strikes across southern Lebanon to thwart a large-scale rocket and drone attack by Hezbollah. US stock index futures trade marginally lower on the day in the European morning on Monday.

EUR/USD gathered bullish momentum ahead of the weekend and reached its highest level in over a year at 1.1200. The pair stays in a consolidation phase early Monday and was last seen trading at around 1.1180.

GBP/USD extended its weekly rally on Friday and rose above 1.3200 for the first time since March 2022. The pair retreats slightly in the European morning and trades a few pips below 1.3200.

USD/JPY stays under bearish pressure to start the week after losing over 1% on Friday and trades deep in the red below 144.00. Earlier in the day, the data from Japan showed that the Leading Economic Index edged higher to 109.0 in June from 108.6 in May.

Gold surged higher on Friday and closed the week above $2,500. XAU/USD continues to stretch higher in the European morning and closes in on $2,520.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

Author

Eren Sengezer

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.

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