Forex Today: USD rises to highest level in nearly four months on inflation fears
Here is what you need to know on Friday, March 13:
The US Dollar (USD) builds on its weekly gains, with the USD Index climbing to its highest level since late November above 100.00. In the second half of the day, the US economic calendar will feature Personal Consumption Expenditures (PCE) Price Index and Durable Goods Orders data for January. Additionally, the US Bureau of Economic Analysis (BEA) will publish the second estimate of the Gross Domestic Product (GDP) growth for the fourth quarter.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.66% | 0.36% | 0.89% | 0.46% | -0.69% | 0.99% | 1.11% | |
| EUR | -0.66% | -0.31% | 0.24% | -0.22% | -1.36% | 0.31% | 0.43% | |
| GBP | -0.36% | 0.31% | 0.57% | 0.09% | -1.05% | 0.63% | 0.74% | |
| JPY | -0.89% | -0.24% | -0.57% | -0.42% | -1.56% | 0.11% | 0.22% | |
| CAD | -0.46% | 0.22% | -0.09% | 0.42% | -1.15% | 0.54% | 0.64% | |
| AUD | 0.69% | 1.36% | 1.05% | 1.56% | 1.15% | 1.69% | 1.81% | |
| NZD | -0.99% | -0.31% | -0.63% | -0.11% | -0.54% | -1.69% | 0.11% | |
| CHF | -1.11% | -0.43% | -0.74% | -0.22% | -0.64% | -1.81% | -0.11% |
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).
With the conflict in the Middle East showing no signs of a de-escalation, crude Oil prices continued to rise on Thursday, feeding into inflation fears and lifting expectations of the Federal Reserve (Fed) keeping the policy rate unchanged for the next three consecutive meetings. After rising about 9% on Thursday, the barrel of West Texas Intermediate (WTI) trades in a narrow channel above $95 early Friday. Iran’s new supreme leader, Mojtaba Khamenei, said in his first public statement that the closure of the Strait of Hormuz maritime passage should be continued as a “tool to pressure the enemy.” Meanwhile, US Treasury Secretary Scott Bessent said that the US Navy will escort oil tankers through the Strait of Hormuz when militarily possible.
The UK's Office for National Statistics (ONS) reported early Friday that the GDP was unchanged on a monthly basis in January. Other data showed that Industrial Production contracted by 0.1%, while Manufacturing Production grew by 0.1%. All these figures came in worse than analysts' estimates. GBP/USD stays under bearish pressure and trades near 1.3300 in the European morning.
The broad-based USD strength weighs heavily on EUR/USD and the pair trades below 1.1500 for the first time in nearly four months. Later in the session, Eurostat will publish Industrial Production data for January.
USD/CAD continues to edge higher and trades above 1.3650 in the European morning on Friday after posting marginal gains for two consecutive days. Statistics Canada will release the labor market data for February, which is expected to show an uptick in the Unemployment Rate to 6.6% from 6.5% in January.
USD/JPY extends its rally and trades comfortably above 159.00 early Friday. On a weekly basis, the pair is up about 1%.
Gold stabilizes above $5,000 after losing nearly 2% on Thursday but remains on track to end the second straight week in negative territory.
(This story was edited on March 13 at 10:15 GMT to clarify that inflation fears are lifting expectations of the Fed keeping the policy rate unchanged in the next three consecutive meetings.)
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.
