Forex Today: Markets await comments from central bankers, Gold renews record-high
Here is what you need to know on Thursday, October 16:
Gold extended its record run to a new all-time high above $4,240 early Thursday after gaining more than 1.5% on Wednesday. As markets stabilize in the European session, XAU/USD corrects lower but holds above $4,200. With the US government shutdown causing postponement of US data releases, investors will pay close attention to comments from central bankers in the second half of 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 weakest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.28% | -0.48% | -0.56% | 0.30% | 0.10% | 0.05% | -0.62% | |
| EUR | 0.28% | -0.20% | -0.23% | 0.57% | 0.48% | 0.33% | -0.36% | |
| GBP | 0.48% | 0.20% | 0.00% | 0.77% | 0.66% | 0.52% | -0.18% | |
| JPY | 0.56% | 0.23% | 0.00% | 0.80% | 0.62% | 0.65% | -0.11% | |
| CAD | -0.30% | -0.57% | -0.77% | -0.80% | -0.22% | -0.22% | -0.94% | |
| AUD | -0.10% | -0.48% | -0.66% | -0.62% | 0.22% | -0.13% | -0.83% | |
| NZD | -0.05% | -0.33% | -0.52% | -0.65% | 0.22% | 0.13% | -0.70% | |
| CHF | 0.62% | 0.36% | 0.18% | 0.11% | 0.94% | 0.83% | 0.70% |
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) continued to weaken against its major rivals midweek, pressured by the uncertainty surrounding the US-China trade relations. Although US Treasury Secretary Scott Bessent said that they don't want to decouple from China, he noted that China was trying to erect new trade barriers. After losing about 0.4% on Wednesday, the USD Index holds steady above 98.50 in the European session on Thursday. Federal Reserve Governors Christopher Waller and Michelle Bowman will be delivering speeches later in the day.
The UK's Office for National Statistics reported early Thursday that the Gross Domestic Product (GDP) expanded at a monthly rate of 0.1% in August. This print followed the 0.1% contraction recorded in July and came in line with the market expectation. Other data from the UK showed that Industrial Production and Manufacturing Production increased by 0.4% and 0.7%, respectively, on a monthly basis. After rising about 0.6% on Wednesday, GBP/USD stays relatively quiet in the European morning on Thursday and trades slightly above 1.3400.
EUR/USD stays in a consolidation phase at around 1.1650 after posting gains for two consecutive days. European Central Bank President Christine Lagarde will participate in the International Monetary Fund's (IMF) debate on 'Global Economy: Shaping Economic Policies in the Face of Disruptive Change' later in the day.
The Unemployment Rate in Australia climbed to 4.5% in September from 4.3% in August, the Australian Bureau of Statistics announced early Thursday. In this period, the Employment Change was +14.9K, compared to the market expectation of +17K. In the meantime, Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent noted that financial conditions were less restrictive after recent rate cuts and added that they will assess the policy outlook with incoming data. After closing in positive territory on Wednesday, AUD/USD struggles to hold its ground and trades marginally lower on the day at around 0.6500.
Japanese Finance Minister Katsunobu Kato repeated on Thursday that they are monitoring excessive fluctuations and disorderly movements in foreign exchange markets. USD/JPY holds steady near 151.00 in the European morning after losing about 0.8% in a two-day slide.
USD/CAD moves sideways slightly below 1.4050 after closing marginally lower on Wednesday. Bank of Canada (BoC) Governor Tiff Macklem will be speaking later in the American session.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
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