Forex Today: US Dollar rally pauses ahead of key US data
Here is what you need to know on Wednesday, March 4:
The US Dollar enters a consolidation phase early Wednesday after outperforming its rivals for two consecutive days. The US economic calendar will feature ADP Employment Change data for February and the Institue for Supply Management (ISM) will publish the February Services Purchasing Managers' Index data.
The US and Israel continue to strike targets in Iran and Lebanon as the crisis in the Middle East deepens. After gaining more than 5% on Tuesday, crude oil prices push higher on Wednesday amid conflicting reports regarding the Strait of Hormuz. US President Donald Trump said late Tuesday that their navy will offer insurance to ships in the Gulf after Iran largely succeeded in shutting down the Strait of Hormuz, adding that the US military will accompany ships through Hormuz if necessary. On the other hand, Iran's Revolutionary Guards said on Wednesday that they retain the control of the Strait of Hormuz. At the time of press, the barrel of West Texas Intermediate (WTI) was trading near $76.50, rising more than 2% on the day.
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 | 1.40% | 0.51% | 0.85% | 0.11% | 0.37% | 0.81% | 1.77% | |
| EUR | -1.40% | -0.91% | -0.57% | -1.28% | -1.02% | -0.57% | 0.36% | |
| GBP | -0.51% | 0.91% | 0.15% | -0.39% | -0.12% | 0.32% | 1.26% | |
| JPY | -0.85% | 0.57% | -0.15% | -0.67% | -0.41% | 0.09% | 0.96% | |
| CAD | -0.11% | 1.28% | 0.39% | 0.67% | 0.23% | 0.76% | 1.66% | |
| AUD | -0.37% | 1.02% | 0.12% | 0.41% | -0.23% | 0.43% | 1.40% | |
| NZD | -0.81% | 0.57% | -0.32% | -0.09% | -0.76% | -0.43% | 0.95% | |
| CHF | -1.77% | -0.36% | -1.26% | -0.96% | -1.66% | -1.40% | -0.95% |
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 USD Index trades marginally lower on the day at around 99.00 in the European morning on Wednesday after gaining nearly 1.5% in a two-day rally to start the week. Meanwhile, US stock index futures are down between 0.3% and 0.4% on the day after Wall Street's main indexes closed deep in the red on Tuesday.
USD/JPY corrects lower on Wednesday and trades below 157.50 after rising for two straight days. Japanese Finance Minister Satsuki Katayama said on Wednesday that they are watching market developments closely and that they prepared to take various measures if needed. In the meantime, Bank of Japan (BoJ) Governor Kazuo Ueda said that the developments in the Middle East could have a big impact on global and the Japanese economy via energy price moves. "Rising oil prices would worsen terms of trade for Japan, put downward pressure on the economy and underlying inflation," Ueda explained.
Gold failed to benefit from the risk-averse market atmosphere and lost more than 4% on Tuesday. XAU/USD rebounds early Wednesday and trades near $5,170, rising more than 1% on the day.
Pressured by the persistent USD strength, EUR/USD extended its weekly slide and touched its lowest level since late November below 1.1550 on Tuesday. The pair corrects higher and holds above 1.1600 in the European morning on Tuesday.
The data from Australia showed earlier in the day that the Gross Domestic Product (GDP) expanded at an annualized rate of 2.6% in the fourth quarter. This print followed the 2.1% growth recorded in the previous quarter and came in better than the market expectation of 2.2%. After losing about 0.8% on Tuesday, AUD/USD holds steady above 0.7000 on Wednesday.
GBP/USD stabilizes at around 1.3350 following a two-day slide.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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