Forex Today: US Dollar extends consolidation ahead of key inflation data, Nvidia earnings
Here is what you need to know on Wednesday, August 26:
Major currency pairs continue to trade in relatively tight weekly ranges early Wednesday as investors gear up for key events. Later in the day, the US Bureau of Economic Analysis (BEA) will publish its second estimate for the the second-quarter Gross Domestic Product (GDP) growth and Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's preferred gauge of inflation, data for July. Moreover, Nvidia (NVDA) will release its earnings report after Wall Street's closing bell.
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 Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.01% | -0.02% | 0.06% | 0.35% | -0.32% | 0.17% | 0.16% | |
| EUR | -0.01% | -0.03% | -0.04% | 0.34% | -0.31% | 0.17% | 0.14% | |
| GBP | 0.02% | 0.03% | -0.07% | 0.39% | -0.27% | 0.19% | 0.20% | |
| JPY | -0.06% | 0.04% | 0.07% | 0.34% | -0.31% | 0.19% | 0.16% | |
| CAD | -0.35% | -0.34% | -0.39% | -0.34% | -0.62% | -0.15% | -0.19% | |
| AUD | 0.32% | 0.31% | 0.27% | 0.31% | 0.62% | 0.48% | 0.48% | |
| NZD | -0.17% | -0.17% | -0.19% | -0.19% | 0.15% | -0.48% | -0.01% | |
| CHF | -0.16% | -0.14% | -0.20% | -0.16% | 0.19% | -0.48% | 0.00% |
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 Dollar (USD) Index holds steady at around 99.00 after posting small losses on Tuesday. Markets expect the core PCE Price Index to rise 0.2% on a monthly basis following the 0.1% increase recorded in June and see the annual rate holding steady at 3.3%.
Dollar seen steady as benign PCE caps DXY topside
Analysts at ING expect the Dollar to remain broadly stable around the upcoming US core PCE release, arguing that “a benign US core PCE print at 0.2% month-on-month should keep the Dollar relatively steady today.” They note that the calmer backdrop in markets could still translate into “some mild dollar losses,” with “99.00/10” likely to “cap the topside for DXY.” In this environment, ING continues to “favour a drift back to the recent lows at 98.60,” suggesting limited upside for the Dollar in the near term.
Meanwhile, Iran and Oman announced a joint proposal to establish a temporary shipping lane in the Strait of Hormuz. However, Iranian Deputy Foreign Minister Kazem Gharibabadi clarified that the critical water way will remain closed despite the agreement with Oman, reiterating Washington must return to its commitments under the Memorandum of Understanding before it is fully opened. After falling more than 4% on Tuesday, the barrel of West Texas Intermediate (WTI) continues to edge lower and was last seen trading near $79.50, losing about 1.5% on the day.
Canada announced on Tuesday that they will be imposing tariffs as high as 50% on a range of US goods amounting to nearly $20 billion in retaliation to the latest wave of levies on Canadian imports imposed by President Donald Trump. After closing flat on Tuesday, USD/CAD gains traction early Wednesday and trades above 1.3850.
Canada’s retaliatory tariffs deepen US trade rift and cloud cross-border outlook
Analysts at Danske Bank highlight that US-Canada trade frictions have intensified after Canada announced retaliatory tariffs. Danske Bank notes that the measures “appear proportional and aimed at strengthening Canada's negotiating position,” yet they also “add uncertainty for businesses on both sides of the border and risk further pressure on prices and supply chains.” With Canada going “tit-for-tat,” the bank points out that the Trump administration is now “said to be weighing additional measures against it,” underscoring a more unsettled backdrop for cross-border trade and corporate planning.
The data from Australia showed earlier in the day that the annual inflation, as measured by the change in the Consumer Price Index, softened to 3.5% in July from 3.8% in June. This print came in above the market expectation of 3.2%. AUD/USD gathers bullish momentum and trades at its highest level since early June above 0.7180.
EUR/USD extends its sideways grind 1.1700 after failing to make a decisive move in either direction on Tuesday.
GBP/USD struggles to keep its footing after posting marginal gains on Tuesday and trades below 1.3650 in the European morning on Wednesday.
USD/JPY corrects lower and fluctuates at around 159.00 following Tuesday's choppy action.
Gold touched its highest level in over three months near $4,700 but lost its traction to close flat on Tuesday. The precious metal edges lower in the European session and trades below $4,630.
Gold uptrend faces key support and retracement tests
Analysts at UOB Group highlight that the “minor ascending daily trendline, now at $4,425, is providing immediate support,” with the same level coinciding with the “21-day EMA at $4,425.” They caution that “a breach of the 21-day EMA at $4,425 would indicate that upward momentum has faded,” potentially signalling a pause in the broader uptrend.
On the topside, UOB points to a cluster of nearby resistance levels, noting that “the next resistance level to monitor is May’s high of $4,773.” They add that “the 50% retracement of the drop from the record high of $5,595 to June’s low of $3,943 is at $4,769, not far below $4,773,” reinforcing the significance of this zone. Should prices break higher, UOB flags that “above $4,773, the next key level to monitor is April’s high of $4,889.”
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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