Forex Today: Focus shifts to ECB rate call, while tensions remain high in Middle East
Here is what you need to know on Thursday, July 23:
Financial markets turn risk-averse on Thursday as crude Oil prices continue to push higher amid a further escalation of tensions in the Middle East. In the second half of the day, the European Central Bank (ECB) will announce monetary policy decisions, and the US economic calendar will feature weekly Initial Jobless Claims data.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.03% | 0.60% | 0.60% | 0.39% | -0.53% | 0.52% | 0.76% | |
| EUR | -0.03% | 0.58% | 0.50% | 0.36% | -0.56% | 0.49% | 0.73% | |
| GBP | -0.60% | -0.58% | -0.07% | -0.22% | -1.13% | -0.09% | 0.19% | |
| JPY | -0.60% | -0.50% | 0.07% | -0.13% | -1.08% | -0.12% | 0.27% | |
| CAD | -0.39% | -0.36% | 0.22% | 0.13% | -0.87% | 0.00% | 0.41% | |
| AUD | 0.53% | 0.56% | 1.13% | 1.08% | 0.87% | 1.06% | 1.33% | |
| NZD | -0.52% | -0.49% | 0.09% | 0.12% | -0.01% | -1.06% | 0.28% | |
| CHF | -0.76% | -0.73% | -0.19% | -0.27% | -0.41% | -1.33% | -0.28% |
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 US military conducted strikes for the 12th consecutive night late Wednesday, reportedly killing at least two people and wounding 11 others near Iran's Shalamcheh border crossing with Iraq. Iran’s Islamic Revolutionary Guard Corps (IRGC) said a tanker caught fire in the Strait of Hormuz following an explosion, while Yemen’s Houthis claimed missile and drone strikes on two Saudi oil tankers in the Red Sea. At the time of press, the barrel of West Texas Intermediate (WTI) was trading above $88.50, up nearly 9% since the beginning of the week.
Brent extends rally as Deutsche Bank flags mounting supply concerns
Analysts at Deutsche Bank highlight that the recent escalation in Middle East tensions has “drove a fresh jump in commodity prices, with oil prices continuing to move higher.” They note that “Brent crude jumped +3.36% to $94.07/bbl by yesterday’s close, and is up a further +1.96% this morning to $95.94/bbl,” underscoring the speed of the move. Moreover, Deutsche Bank points out that “investors also priced in a longer period of high oil prices, and the 6-month Brent future (+0.59%) hit a one-month high of $81.74/bbl yesterday as well,” suggesting expectations of sustained tightness rather than a short-lived spike. In their view, “that’s raised fresh supply fears given Saudi Arabia has redirected oil exports to the Red Sea port of Yanbu,” adding another layer of concern to an already strained market backdrop.
Reflecting the risk-averse market atmosphere, US stock index futures lose between 0.6% and 0.8% in the European morning, while the US Dollar (USD) Index holds steady, slightly above 101.00.
The ECB is widely anticipated to leave key rates unchanged following its July policy meeting. After posting marginal gains on Wednesday, EUR/USD holds steady above 1.1400 in the early European session on Thursday.
ECB seen on hold but September hike risk grows as Gulf tensions persist
Strategists at Societe Generale expect the ECB to leave policy unchanged at today’s meeting, but caution that the Governing Council debate may be more active than the unchanged outcome suggests. They note that “policy will stay on hold today but we wouldn’t frankly be surprised if discussions took place over a second rate increase,” highlighting that the recent escalation in Gulf tensions is increasingly shaping the rate outlook. In their view, “without de-escalation in the Gulf, a hike in the depo rate to 2.50% could be inevitable in September to lean against the second-round effects of the energy supply shock,” underscoring the risk that persistent energy-driven price pressures force the ECB into further tightening later in the year.
Gold (XAU/USD) ignored escalating tensions on Wednesday and gained more than 1% on a daily basis. XAU/USD corrects lower on Thursday and trades slightly below $4,100.
GBP/USD found a foothold and closed flat on Wednesday after suffering large losses for four consecutive days. The pair struggles to gather recovery momentum on Thursday and moves sideways below 1.3400.
USD/JPY's correction remained short-lived on Wednesday and the pair recovered to close the day virtually unchanged above 163.00. The pair gains traction in the European session and trades at its highest level in about four decades above 163.30. Japanese Finance Minister Satsuki Katayama reiterated early Thursday that his government is “ready to take decisive action on foreign exchange as needed.”
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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