Forex Today: US inflation data, fluctuating Oil prices to drive action
Here is what you need to know on Wednesday, March 11:
The US Dollar (USD) struggles to find demand in the European session on Wednesday as investors gear up for the release of the February Consumer Price Index (CPI) data, while keeping a close eye on headlines surrounding the crisis in the Middle East.
Citing US central command early Wednesday, Reuters reported that US forces elimintaed multiple Iranian naval vessels, including 16 minelayers operating near the Strait of Hormuz. According to the Wall Street Journal, the International Energy Agency (IEA) has proposed the largest release of Oil reserves in its history in an effort to lower crude prices that have soared since the beginning of the conflict. Following wild fluctuations throughout the day, crude Oil prices ended little-changed on Tuesday. Early Wednesday, the barrel of West Texas Intermediate (WTI) trades at around $83, losing about 3% on the day.
In the meantime, Israel announced that it had begun an "additional wave" of strikes against targets in Tehran. The Islamic Revolutionary Guard Corps (IRGC) of Iran also noted that it escalated its operations against the US and Israel, targeting the enemy's technological infrastructure in the region. The Financial Times reported late Tuesday that Israel rejected Lebanon’s request for cessation in fighting to allow for talks, demanding negotiations only take place “under fire.”
After spending the first half of the day under bearish pressure on Tuesday, the USD Index staged a rebound in the American session to post marginal daily gains. Following Monday's rebound, Wall Street's main indexes failed to gather bullish momentum and registered small losses on Tuesday. In the European morning on Wednesday, the USD Index stays relatively quiet below 99.00, while US stock index futures rise about 0.2%. Annual inflation in the US, as measured by the change in the CPI, is forecast to hold steady at 2.4% in February.
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 | -0.70% | -0.71% | 0.05% | -0.24% | -2.56% | -1.20% | -0.21% | |
| EUR | 0.70% | -0.03% | 0.75% | 0.45% | -1.89% | -0.52% | 0.47% | |
| GBP | 0.71% | 0.03% | 0.81% | 0.47% | -1.87% | -0.49% | 0.50% | |
| JPY | -0.05% | -0.75% | -0.81% | -0.25% | -2.58% | -1.21% | -0.23% | |
| CAD | 0.24% | -0.45% | -0.47% | 0.25% | -2.34% | -0.96% | 0.02% | |
| AUD | 2.56% | 1.89% | 1.87% | 2.58% | 2.34% | 1.40% | 2.39% | |
| NZD | 1.20% | 0.52% | 0.49% | 1.21% | 0.96% | -1.40% | 0.99% | |
| CHF | 0.21% | -0.47% | -0.50% | 0.23% | -0.02% | -2.39% | -0.99% |
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).
EUR/USD holds steady above 1.1600 after posting small losses on Tuesday. European Central Bank (ECB) President Christine Lagarde said late Tuesday that the degree of uncertainty and volatility because of the Middle East crisis is surprising and added that the central bank will take the necessary measures to control inflation.
GBP/USD lost its traction after climbing to a fresh March-high on Tuesday and ended the day in the red. The pair edges higher early Wednesday and trades slightly below 1.3450.
USD/JPY stays calm early Wednesday and moves sideways slightly above 158.00. A Reuters poll showed that the Bank of Japan (BoJ) was expected to keep rates unchanged at 0.75% next week.
Gold benefited from risk-aversion and rose about 1% on Tuesday. XAU/USD stays in a consolidation phase at around $5,200 in the European morning on Wednesday.
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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