Forex Today: US CPI data and BoC rate decision to lift market volatility
Here is what you need to know on Wednesday, December 11:
The US Dollar (USD) stays resilient against its major rivals early Wednesday, with the USD Index holding comfortably above 106.00. The US Bureau of Labor Statistics will publish the Consumer Price Index (CPI) data for November. Additionally, the Bank of Canada (BoC) will announce monetary policy decisions following the last meeting of the year.
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 | 0.55% | -0.07% | 1.08% | 0.16% | 0.53% | 1.07% | 0.64% | |
| EUR | -0.55% | -0.61% | 0.64% | -0.31% | 0.06% | 0.61% | 0.16% | |
| GBP | 0.07% | 0.61% | 1.08% | 0.30% | 0.67% | 1.23% | 0.77% | |
| JPY | -1.08% | -0.64% | -1.08% | -0.94% | -0.46% | -0.13% | -0.37% | |
| CAD | -0.16% | 0.31% | -0.30% | 0.94% | 0.41% | 0.92% | 0.46% | |
| AUD | -0.53% | -0.06% | -0.67% | 0.46% | -0.41% | 0.55% | 0.10% | |
| NZD | -1.07% | -0.61% | -1.23% | 0.13% | -0.92% | -0.55% | -0.46% | |
| CHF | -0.64% | -0.16% | -0.77% | 0.37% | -0.46% | -0.10% | 0.46% |
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 cautious market mood helped the USD find demand during the American trading hours on Tuesday. Moreover, the benchmark 10-year US Treasury bond yield recovered above 4.2%, further supporting the currency. On a yearly basis, the CPI is forecast to rise 2.7% in November following the 2.6% increase recorded in October. The core CPI, which excludes volatile food and energy prices, is expected to rise 0.3% on a monthly basis. Ahead of this key CPI report, US stock index futures marginally higher on the day.
USD/CAD edged higher on Tuesday and touched its strongest level since April 2020 near 1.4200. The pair stays in a consolidation phase above 1.4150 in the European morning on Wednesday. The BoC is expected to lower the policy by 50 basis points to 3.25%. BoC Governor Tiff Macklem will deliver the policy statement and respond to questions in a press conference starting at 15:30 GMT.
EUR/USD closed marginally lower on Tuesday and continued to stretch lower early Wednesday. Nevertheless, the pair manages to hold above 1.0500 to begin the European session.
GBP/USD failed to gather bullish momentum and registered small gains on Tuesday. The pair stays relatively quiet at around 1.2750 in the European morning.
The data from Japan showed on Wednesday that the Producer Price Index rose 3.7% on a yearly basis in November, coming in above the market expectation of 3.4%. After closing in the green on Monday and Tuesday, USD/JPY edges lower and trades near 151.50 on Wednesday.
Gold preserved its bullish momentum following Monday's rally and registered strong gains on Tuesday. After testing $2,700 in the Asian session on Wednesday, XAU/USD corrected lower and was last seen trading at around $2,690.
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.