Forex Today: Market volatility eases as focus shifts to US inflation data
Here is what you need to know on Friday, April 10:
Markets take a breather early Friday and major currency pairs' fluctuations remain contained as investors' focus shifts to the March Consumer Price Index (CPI) data from the United States (US). The economic calendar will also feature Canada employment data for March and the University of Michigan (UoM) will publish the preliminary Consumer Sentiment Index data for April.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.40% | -1.70% | -0.24% | -0.79% | -2.50% | -2.57% | -1.27% | |
| EUR | 1.40% | -0.30% | 1.17% | 0.64% | -1.11% | -1.21% | 0.12% | |
| GBP | 1.70% | 0.30% | 1.41% | 0.92% | -0.81% | -0.91% | 0.44% | |
| JPY | 0.24% | -1.17% | -1.41% | -0.54% | -2.25% | -2.30% | -1.05% | |
| CAD | 0.79% | -0.64% | -0.92% | 0.54% | -1.72% | -1.77% | -0.48% | |
| AUD | 2.50% | 1.11% | 0.81% | 2.25% | 1.72% | -0.07% | 1.26% | |
| NZD | 2.57% | 1.21% | 0.91% | 2.30% | 1.77% | 0.07% | 1.34% | |
| CHF | 1.27% | -0.12% | -0.44% | 1.05% | 0.48% | -1.26% | -1.34% |
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).
Following Wednesday's risk rally, markets adopted a cautious tone on Thursday with investors doubting the sustainability of the ceasefire agreement between the US and Iran. Nonetheless, the US Dollar (USD) Index registered small daily losses and Wall Street's main indexes gained between 0.5% and 0.7%. After suffering heavy losses midweek, crude Oil prices edged higher and the barrel of West Texas Intermediate rose about 1% on the day before stabilizing near $92.00.
Israeli Prime Minister Benjamin Netanyahu announced Thursday that he has ordered the start of direct negotiations with Lebanon "as soon as possible," with talks expected to center on disarming Hezbollah and establishing a formal peace between the two nations. However, Netanyahu later clarified that there is "no ceasefire in Lebanon" and that they will continue to strike Hezbollah with full force. Meanwhile, US President Donald Trump said that Iran was doing a "very poor job" of allowing Oil to go through the Strait of Hormuz. Early Friday, US Stock index futures trade marginally lower and USD Index clings to gains near 99.00. In the US, the CPI is forecast to rise 3.3% on a yearly basis in March, up sharply from 2.4% in February.
Gold (XAU/USD) rose about 1% on Thursday but lost its recovery momentum early Friday. At the time of press, XAU/USD was trading in a tight channel at around $4,750.
EUR/USD posted gains for the fourth consecutive day on Thursday before entering a consolidation phase at around 1.1700 on Friday.
USD/CAD recovers slightly and trades at around 1.3830 after touching its weakest level in two weeks near near 1.3800 on Thursday. In Canada, the Unemployment Rate is forecast to edge higher to 6.8% from 6.7% in February.
GBP/USD retreats in the European morning on Friday but holds above 1.3400 following a four-day climb.
USD/JPY closed in positive territory on Thursday and continued to edge higher in the Asian session on Friday. As of writing, the pair was up 0.2% on the day near 159.30. Bank of Japan (BoJ) Deputy Governor Ryozo Himino said that the Japanese economy is not in stagflation and explained that a prolonged conflict in the Middle East could push down growth and accelerate inflation.
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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