Forex Today: Market focus shifts from Middle East to Fed
Here is what you need to know on Wednesday, March 18:
There is a positive shift in market mood midweek, supported by falling crude Oil prices. In the second half of the day, the US economic calendar will feature Producer Price Index (PPI) data for February. More importantly, the Bank of Canada (BoC) and the Federal Reserve (Fed) will announce monetary policy decisions.
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 | -0.87% | -0.81% | -0.49% | -0.11% | -1.66% | -1.12% | -0.46% | |
| EUR | 0.87% | 0.08% | 0.31% | 0.76% | -0.79% | -0.26% | 0.41% | |
| GBP | 0.81% | -0.08% | 0.38% | 0.68% | -0.85% | -0.33% | 0.40% | |
| JPY | 0.49% | -0.31% | -0.38% | 0.39% | -1.17% | -0.62% | 0.02% | |
| CAD | 0.11% | -0.76% | -0.68% | -0.39% | -1.59% | -1.00% | -0.34% | |
| AUD | 1.66% | 0.79% | 0.85% | 1.17% | 1.59% | 0.53% | 1.21% | |
| NZD | 1.12% | 0.26% | 0.33% | 0.62% | 1.00% | -0.53% | 0.64% | |
| CHF | 0.46% | -0.41% | -0.40% | -0.02% | 0.34% | -1.21% | -0.64% |
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).
Iran confirmed on Tuesday that Ali Larijani, the secretary of the Supreme National Security Council, who Israel described as "the de facto leader," was killed in an Israeli strike. Early Wednesday, Israel initiated a new wave of strikes on Lebanon's capital Beirut and ordered evacuations, as the US military launched "deep penetrator" bombs targeting Iranian missile sites along the Strait of Hormuz.
Meanwhile, citing North Oil Company sources, Reuters reported that Baghdad and the Kurdistan Regional Government (KRG) reached an agreement to resume crude exports from Iraq's Kirkuk fields to Turkiye's Ceyhan port. After rising more than 2% on Tuesday, the barrel of West Texas Intermediate (WTI) edges lower and trades at around $93, down about 2.5% on the day.
Following an uptick in the first half of the day, the US Dollar (USD) Index reversed its direction in the American session on Tuesday and closed the second consecutive day in negative territory, pressured by the improving risk mood. Early Wednesday, the USD Index holds steady above 99.50, while US stock index futures rise between 0.5% and 0.6%. The Fed is widely expected to leave the policy rate unchanged following the March meeting. Alongside the policy statement, the US central bank will also publish the Summary of Economic projections. Starting at 18:30 GMT, Fed Chair Jerome Powell will hold a press conference.
After failing to make a decisive move in either direction and closing virtually unchanged on Tuesday, USD/CAD trades marginally higher on the day above 1.3700. The BoC is forecast to maintain the policy rate at 2.25%.
Gold remains within a consolidation phase and trades slightly below $5,000 in the European session on Wednesday after struggling to find direction on Monday and Tuesday.
EUR/USD fluctuates in a narrow channel 1.1500 in the European morning on Wednesday. Eurostat will publish revisions to February Harmonized Index of Consumer Prices (HICP) data later in the day. On Thursday, the European Central Bank (ECB) will announce policy decisions.
GBP/USD benefited from risk flows and extended its recovery into a second straight day on Tuesday. The pair holds steady at around 1.3350 early Wednesday. The Bank of England (BoE) is expected to leave the policy rate unchanged on Thursday.
USD/JPY stays under modest bearish pressure in the European morning and trades below 159.00. The Bank of Japan will announce its interest rate decision during the Asian session on Thursday.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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