Forex Today: ECB policy announcements, PMI data to lift market volatility
Here is what you need to know on Thursday, July 24:
Financial markets will take a break from trade-related headlines on Thursday and pay close attention to the European Central Bank's (ECB) monetary policy announcements. Additionally, the economic calendar will feature preliminary July Manufacturing and Services Purchasing Managers Index (PMI) data for Germany, the Eurozone, the UK and the US.
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.19% | -1.13% | -1.27% | -0.83% | -1.54% | -1.35% | -1.10% | |
| EUR | 1.19% | 0.14% | -0.05% | 0.34% | -0.40% | -0.35% | 0.05% | |
| GBP | 1.13% | -0.14% | -0.40% | 0.25% | -0.50% | -0.26% | 0.11% | |
| JPY | 1.27% | 0.05% | 0.40% | 0.46% | -0.23% | -0.13% | 0.35% | |
| CAD | 0.83% | -0.34% | -0.25% | -0.46% | -0.65% | -0.52% | -0.31% | |
| AUD | 1.54% | 0.40% | 0.50% | 0.23% | 0.65% | 0.13% | 0.59% | |
| NZD | 1.35% | 0.35% | 0.26% | 0.13% | 0.52% | -0.13% | 0.38% | |
| CHF | 1.10% | -0.05% | -0.11% | -0.35% | 0.31% | -0.59% | -0.38% |
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).
As markets cheered the news of the US-Japan trade deal, risk flows dominated the market action on Wednesday. Wall Street's main indexes registered strong daily gains and the US Dollar (USD) Index closed in negative territory for the fourth consecutive day. Early Thursday, US stock index futures trade mixed and the USD Index holds steady above 97.00. The White House said late Wednesday that US President Donald Trump will visit the Federal Reserve on Thursday.
During the Asian trading hours, the data from Australia showed that the S&P Global Composite PMI improved to 53.6 in July from 51.6 in June, reflecting an ongoing expansion in the private sector's business activity at an accelerating pace. Meanwhile, Reserve Bank of Australia (RBA) Governor Michele Bullock reiterated that a measured and a gradual approach to monetary easing is appropriate. After rising more than 0.7% on Wednesday, AUD/USD preserves its bullish momentum early Thursday and trades at its highest level since November above 0.6600.
Jibun Bank Manufacturing PMI in Japan declined to 48.8 in July and came in below the market expectation of 50.2. On a positive note, Jibun Bank Services PMI rose to 53.5 from 51.7 in this period. USD/JPY stays under bearish pressure and trades near 146.00 in the European morning, losing more than 0.3% on the day.
The ECB is widely anticipated to leave key rates unchanged after the July meeting. ECB President Christine Lagarde will speak on the policy outlook in a pres conference starting at 12:45 GMT. EUR/USD stays in a consolidation phase above 1.1750 after registering moderate gains on Wednesday.
GBP/USD holds steady above 1.3550 after closing the previous three days decisively higher.
USD/CAD fluctuates in a tight channel at around 1.3600 in the European session on Thursday and loses about 1% on a weekly basis. Later in the day, Statistics Canada will release Retail Sales data for May.
Gold struggled to find demand and staged a deep correction on Wednesday as risk flows dominated the markets. XAU/USD continues to stretch lower after losing more than 1% on Wednesday and trades below $3,380.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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