Forex Today: US Dollar holds ground ahead of mid-tier data releases, FOMC meeting
Here is what you need to know on Tuesday, October 27:
Markets adopt a cautious stance on Tuesday following Monday's choppy action. The US Dollar (USD) stays resilient against its peers even though the benchmark 10-year US Treasury bond yield stays below 5%. The US economic calendar will feature Durable Goods Orders and New Home Sales data for September, alongside regional manufacturing surveys and the Conference Board's Consumer Confidence Index data for October. Additionally, the Federal Open Market Committee's (FOMC) two-day policy meeting will get under way late Tuesday.
The USD Index closed in positive territory on Monday but struggled to gather bullish momentum as the bullish action seen in Wall Street, amid falling crude Oil prices, pointed to an improving market mood. Early Tuesday, US stock index futures trade marginally lower, while the USD Index clings to small gains above 102.00.
After losing about 2% on Monday, the barrel of West Texas Intermediate (WTI) trades marginally higher on the day. The Saudi-led coalition said early Tuesday that air defences intercepted and destroyed four drones launched by the Houthis towards the southern region of Saudi Arabia, as per Reuters.
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 | 0.49% | 0.33% | 0.47% | -0.16% | 0.27% | 0.06% | 0.50% | |
| EUR | -0.49% | -0.18% | -0.05% | -0.68% | -0.30% | -0.50% | -0.06% | |
| GBP | -0.33% | 0.18% | 0.04% | -0.53% | -0.12% | -0.26% | 0.09% | |
| JPY | -0.47% | 0.05% | -0.04% | -0.58% | -0.26% | -0.37% | -0.06% | |
| CAD | 0.16% | 0.68% | 0.53% | 0.58% | 0.36% | 0.15% | 0.62% | |
| AUD | -0.27% | 0.30% | 0.12% | 0.26% | -0.36% | -0.19% | 0.04% | |
| NZD | -0.06% | 0.50% | 0.26% | 0.37% | -0.15% | 0.19% | 0.41% | |
| CHF | -0.50% | 0.06% | -0.09% | 0.06% | -0.62% | -0.04% | -0.41% |
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).
Fed seen on hold in October as BNY shifts focus to December tightening risks
Strategists at BNY Markets align with prevailing market expectations, stating that "in line with the market, we don’t foresee a rate hike at the October FOMC tomorrow and prefer to place our expectations for further tightening on the December meeting." They argue that, "based on Fed commentary and a steady, if sticky, inflation outlook, we don’t think the weight of the Committee will fall on the hawkish side."
Japanese Finance Minister Satsuki Katayama said on Tuesday that the government is prepared to take decisive steps in the foreign exchange market, reiterating that officials will closely monitor market moves with heightened urgency. After rising 0.4% on Monday, USD/JPY continues to push higher and was last seen rising 0.2% on the day at 157.80.
GBP/USD lost about 0.3% on Monday and closed the second consecutive trading day in negative territory. The pair stays on the back foot early Tuesday and trades below 1.3330. On Wednesday, the August Budget announcement from the UK, which will contain economic forecasts prepared by the Office for Budget Responsibility (OBR), will be scrutinized by market participants.
Commerzbank’s Michael Pfister cautions that the forthcoming UK budget under Prime Minister Andy Burnham is “unlikely to result in major progress,” noting that Burnham has “recently announced that significant changes would only occur following a potential re-election.” Nevertheless, Pfister argues that “market participants are likely to be relieved that the presentation of the new budget is proceeding relatively calmly,” reinforcing the sense that the Pound could be supported by a more measured fiscal communication strategy.
EUR/USD stays under bearish pressure for the fourth straight trading day on Tuesday and declines toward 1.1150 in the early European session.
Gold continues to move sideways at around $4,000 early Tuesday after posting small gains on Monday.
AUD/USD closed in the red on Monday but managed to stabilize above 0.7000. In the early trading hours of the Asian session on Wednesday, September Consumer Price Index (CPI) data from Australia could ramp up the pair's volatility.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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