Forex Today: Oil prices rise further, keeping markets on edge
Here is what you need to know on Monday, July 20:
Oil prices climb higher at the beginning of the week as there are no signs of a de-escalation of the crisis in the Middle East. In the second half of the day, Statistics Canada will publish the Consumer Price Index (CPI) data for June.
The United States (US) and Iran continued to exchange attacks over the weekend, ramping up the military aggression in the region. The US military announced that it completed its ninth consecutive night of strikes against Iranian command centers, defence sites, communication networks and missile facilities. In response, Iran targeted US military assets in Kuwait and Bahrain, while the Islamic Revolutionary Guard Corps reported that two oil tankers attempting to cross the Strait of Hormuz via an unsafe route had exploded and been immobilisied.
After rising nearly 15% in the previous week, the barrel of West Texas Intermediate (WTI) opened with a bullish gap and was last seen trading at its highest level in over a month above $83.50, up about 2.5% on a daily basis.
In the meantime, the US Dollar (USD) Index fluctuates in a narrow range below 101.00 following a two-day rebound to end the previous week, and US stock index futures trade little changed on the day.
US Dollar Price Last 7 Days
The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.37% | -0.62% | 0.37% | -1.06% | -0.75% | -1.66% | -0.11% | |
| EUR | 0.37% | -0.26% | 0.78% | -0.70% | -0.43% | -1.30% | 0.27% | |
| GBP | 0.62% | 0.26% | 0.98% | -0.44% | -0.19% | -1.05% | 0.57% | |
| JPY | -0.37% | -0.78% | -0.98% | -1.50% | -1.13% | -2.07% | -0.53% | |
| CAD | 1.06% | 0.70% | 0.44% | 1.50% | 0.39% | -0.57% | 1.00% | |
| AUD | 0.75% | 0.43% | 0.19% | 1.13% | -0.39% | -0.88% | 0.60% | |
| NZD | 1.66% | 1.30% | 1.05% | 2.07% | 0.57% | 0.88% | 1.63% | |
| CHF | 0.11% | -0.27% | -0.57% | 0.53% | -1.00% | -0.60% | -1.63% |
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).
During the Asian trading hours, the People’s Bank of China (PBOC), China's central bank, announced that it left its Loan Prime Rates (LPRs) unchanged, with the one-year and five-year references holding at 3.00% and 3.50%, respectively. AUD/USD stays relatively quiet on Monday and trades marginally higher on the day, slightly below 0.7000.
Statistics New Zealand will release its quarterly Consumer Price Index (CPI) data in the early Asian session on Tuesday. NZD/USD clings to small gains near 0.5850 in the European morning on Monday.
EUR/USD trades flat on the day, slightly below 1.1450, after opening with a small bearish gap.
Andy Burnham is set to become the UK's seventh Prime Minister in a decade later in the day. Burnham is expected to appoint Shabana Mahmood, who is seen as someone who would support fiscal conservatism, as his finance minister. GBP/USD clings to small gains above 1.3450 to start the European session.
Gold holds slightly above $4,000 after losing about 2.5% in the previous week.
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.
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