Forex Today: US Dollar holds ground despite US-Iran peace deal optimism
Here is what you need to know on Friday, May 22:
The US Dollar (USD) stays resilient against its peers following Thursday's volatile action as investors assess the latest developments surrounding the Middle East conflict. The European economic calendar will feature IFO business sentiment data on Friday. In the second half of the day, the University of Michigan will publish a revision to the May US Consumer Sentiment Index data. Additionally, US President Donald Trump will swear in Kevin Warsh as the chair of the Federal Reserve (Fed) at the White House.
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 Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.11% | -0.74% | 0.21% | 0.30% | 0.24% | -0.38% | 0.03% | |
| EUR | -0.11% | -0.85% | 0.17% | 0.18% | 0.11% | -0.43% | -0.10% | |
| GBP | 0.74% | 0.85% | 0.96% | 1.05% | 0.98% | 0.44% | 0.74% | |
| JPY | -0.21% | -0.17% | -0.96% | 0.04% | -0.04% | -0.64% | -0.22% | |
| CAD | -0.30% | -0.18% | -1.05% | -0.04% | -0.09% | -0.69% | -0.31% | |
| AUD | -0.24% | -0.11% | -0.98% | 0.04% | 0.09% | -0.54% | -0.13% | |
| NZD | 0.38% | 0.43% | -0.44% | 0.64% | 0.69% | 0.54% | 0.30% | |
| CHF | -0.03% | 0.10% | -0.74% | 0.22% | 0.31% | 0.13% | -0.30% |
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).
Reports suggesting that the United States (US) and Iran were in the final stages of an agreement helped the market mood improve during the American trading hours on Thursday. After rising to its highest level since early April above 99.50, the USD Index erased a large portion of its daily advance to close the day near 99.20, while Wall Street's main indexes registered marginal gains. The data from the US showed on Thursday that the business activity in the private sector continued to expand at a healthy pace, with the S&P Global Composite Purchasing Managers' Index (PMI) coming in at 51.7 in May's preliminary estimate and matching April's print.
In the early trading hours of the Asian session on Friday, Reuters reported that a senior Iranian official clarified that no deal had been reached with the US but the gaps had been narrowed, adding that Iran’s uranium enrichment and Tehran’s control over the Strait of Hormuz are the remaining sticking points. In the meantime, US secretary of State Marco Rubio told reporters that there are "some good signs." "I don't want to be overly optimistic. So, let's see what happens over the next few days," he said. The USD Index holds steady near 99.20 in the early European session on Friday and US stock index futures trade modestly higher.
The UK's Office for National Statistics reported on Friday that Retail Sales declined by 1.3% on a monthly basis in April. This print followed the 0.6% growth recorded in March and came in worse than the market expectation for a decrease of 0.6%. GBP/USD struggles to find direction and fluctuates in a tight channel below 1.3450 after posting small losses on Thursday.
EUR/USD extends its sideways grind slightly above 1.1600 after recovering above this level during the American trading hours on Thursday. The data from Germany showed that the Gross Domestic Product expanded at an annual rate of 0.4% in the first quarter, compared to the initial estimate of 0.3%.
After falling below $4,500, Gold (XAU/USD) reversed its direction in the second half of the day on Thursday to close flat. XAU/USD stays under modest bearish pressure in the European morning on Friday and fluctuates at around $4,530.
National Consumer Price Index (CPI) in Japan rose by 1.4% on a yearly basis in April after rising 1.5% in March. USD/JPY stays quiet in the European morning and trades a tad above 159.00.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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