Forex Today: US Dollar consolidates recovery gains ahead of key data, FOMC Minutes
Here is what you need to know on Wednesday, January 8:
Following a bearish opening to the week, the US Dollar (USD) gathered strength against its rivals on Tuesday, supported by the upbeat macroeconomic data releases and the cautious market mood. Private sector employment data from the US will be watched closely by market participants on Wednesday. Later in the American session, the Federal Reserve (Fed) will publish the minutes of the December policy meeting.
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 weakest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.35% | -0.48% | 0.51% | -0.70% | -0.22% | -0.34% | -0.02% | |
| EUR | 0.35% | -0.14% | 0.80% | -0.27% | 0.18% | 0.06% | 0.37% | |
| GBP | 0.48% | 0.14% | 0.97% | -0.15% | 0.32% | 0.19% | 0.51% | |
| JPY | -0.51% | -0.80% | -0.97% | -1.20% | -0.70% | -0.81% | -0.29% | |
| CAD | 0.70% | 0.27% | 0.15% | 1.20% | 0.41% | 0.32% | 0.66% | |
| AUD | 0.22% | -0.18% | -0.32% | 0.70% | -0.41% | -0.12% | 0.19% | |
| NZD | 0.34% | -0.06% | -0.19% | 0.81% | -0.32% | 0.12% | 0.31% | |
| CHF | 0.02% | -0.37% | -0.51% | 0.29% | -0.66% | -0.19% | -0.31% |
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 data from the US showed on Tuesday that the ISM Services PMI improved to 54.1 in December from 52.1 in November, pointing to an ongoing expansion in the services sector's activity at an accelerating pace. Additionally, JOLTS Job Openings rose to 8.09 million in November from 7.84 million in October. After losing more than 0.5% on Monday, the USD Index staged a rebound on Tuesday and gained nearly 0.4% on the day. Meanwhile, Wall Street's main indexes registered large losses. Early Wednesday, US stock index futures trade marginally higher on the day and the USD Index holds steady above 108.50.
Early Wednesday, Germany's Destatis reported that Factory Orders declined by 5.4% on a monthly basis in November. In the same period, Retail Sales contracted by 0.6%. Both of these figures came in worse than analysts' estimates. EUR/USD showed no immediate reaction to these data and was last seen moving sideways slightly below 1.0350. During the European trading hours, the European Commission will publish business and consumer sentiment data for December and Eurostat will release Producer Price Index figures for November.
The data from Australia showed on Wednesday that the Monthly Consumer Price Index (YoY) rose to 2.3% in November from 2.1% in October. AUD/USD pays no attention to this data and fluctuates in a tight range above 0.6200 to begin the European session.
Following a two-day rally, GBP/USD reversed its direction and closed in negative territory on Tuesday. The pair stays in a consolidation phase below 1.2500 in the European morning.
Gold struggled to gather bullish momentum on Tuesday and registered small gains. XAU/USD hols steady slightly above $2,650 in the early European session on Wednesday.
USD/JPY posted small gains for the second consecutive day on Tuesday. The pair trades in a narrow channel at around 158.00 on Wednesday. Former Bank of Japan (BoJ) Governor Haruhiko Kuroda presented a research paper on Wednesday, predicting more interest rate hikes over the coming years.
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.