Forex Today: US Dollar rally pauses ahead of consumer confidence data
Here is what you need to know on Friday, October 10:
The US Dollar (USD) takes a step back following a four-day rally as markets await the University of Michigan's (UoM) preliminary Consumer Sentiment Index data for October. In the second half of the day, Statistics Canada will publish the employment data for September.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.17% | 1.03% | 2.18% | 0.44% | 0.35% | 1.09% | 1.13% | |
| EUR | -1.17% | -0.24% | 0.94% | -0.76% | -0.84% | -0.13% | -0.07% | |
| GBP | -1.03% | 0.24% | 1.26% | -0.52% | -0.60% | 0.12% | 0.17% | |
| JPY | -2.18% | -0.94% | -1.26% | -1.67% | -1.85% | -1.16% | -1.08% | |
| CAD | -0.44% | 0.76% | 0.52% | 1.67% | -0.05% | 0.64% | 0.69% | |
| AUD | -0.35% | 0.84% | 0.60% | 1.85% | 0.05% | 0.72% | 0.78% | |
| NZD | -1.09% | 0.13% | -0.12% | 1.16% | -0.64% | -0.72% | 0.05% | |
| CHF | -1.13% | 0.07% | -0.17% | 1.08% | -0.69% | -0.78% | -0.05% |
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).
Democrats and Republicans failed to make any progress in reopening the government after the funding bill, once again, was rejected with a 54-45 vote. The Senate will return on Tuesday and there won't be any other votes on the bill until then. Meanwhile, the New York Times reported earlier in the day that the US Bureau of Labor Statistics (BLS) is calling back a limited number of staff from furlough to complete the September Consumer Price Index (CPI) report. Nevertheless, it's unclear whether the inflation data will be released on October 15, as originally scheduled. After rising more than 0.5% on Thursday, the USD Index stays below 99.50 in the European morning on Friday, while US stock index futures trade marginally higher.
The Unemployment Rate in Canada is forecast to edge higher to 7.2% in September from 7.1% in August. USD/CAD holds steady at around 1.4000 in the European morning on Friday after having touched its highest level since April above 1.4030 earlier in the day.
USD/JPY holds steady at around 153.00 early Friday and it's up more than 3.5% since the beginning of the week. Growing concerns over a political crisis in Japan doesn't allow the Japanese Yen to stage a decisive rebound. Komeito party leader Tetsuo Saito said on Friday that they cannot agree with the Japan’s ruling Liberal Democratic Party (LDP) on issues involving money, politics, adding that they want to reset LDP-Komeito ruling coalition for the time being.
EUR/USD lost more than 0.5% on Thursday and closed the fourth consecutive day in negative territory. The pair corrects higher early Friday but remains below 1.1600.
GBP/USD stabilizes near 1.3300 in the European session on Friday after falling about 0.75% on Thursday.
Easing geopolitical tensions in the Middle East triggered a deep correction in Gold on Thursday. After losing 1.6% and closing below $4,000, XAU/USD struggles to gather recovery momentum and fluctuates in a tight range above $3,980.
Reserve Bank of Australia (RBA) Governor Bullock said on Friday that services inflation remains "a little sticky" and added that the labor market is close to coming to balance despite being a little tight. Following Thursday's 0.5% loss, AUD/USD clings to small daily gains above 0.6560 in the European morning on Friday.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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