Forex Today: US Dollar stabilizes as market mood sours
Here is what you need to know on Friday, February 27:
Markets remain cautious early Friday, helping the US Dollar (USD) stay resilient against its rivals. The European economic calendar will feature preliminary February inflation data from Germany. Later in the day, January Producer Price Index (PPI) data from the US and fourth-quarter Gross Domestic Product (GDP) figures from Canada will be watched closely by investors.
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 | -0.16% | -0.04% | 0.72% | -0.02% | -0.59% | -0.16% | -0.27% | |
| EUR | 0.16% | 0.13% | 0.87% | 0.14% | -0.45% | -0.00% | -0.09% | |
| GBP | 0.04% | -0.13% | 0.91% | 0.00% | -0.61% | -0.14% | -0.21% | |
| JPY | -0.72% | -0.87% | -0.91% | -0.72% | -1.28% | -0.81% | -0.97% | |
| CAD | 0.02% | -0.14% | -0.01% | 0.72% | -0.57% | -0.09% | -0.23% | |
| AUD | 0.59% | 0.45% | 0.61% | 1.28% | 0.57% | 0.45% | 0.35% | |
| NZD | 0.16% | 0.00% | 0.14% | 0.81% | 0.09% | -0.45% | -0.09% | |
| CHF | 0.27% | 0.09% | 0.21% | 0.97% | 0.23% | -0.35% | 0.09% |
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).
Following a two-day risk rally, safe-haven flows returned to markets. After posting strong gains on Tuesday and Wednesday, the tech-heavy Nasdaq Composite lost more than 1% on a daily basis on Thursday. In turn, the USD Index closed marginally higher.
Meanwhile, Oman's Foreign Minister, Badr al-Busaidi, said that talks between the US and Iran on nuclear issues have made "significant progress.” Sides will have internal consultations before resuming negotiations in Vienna next week. This development doesn't seem to be helping the risk mood improve early Friday. As of writing, US stock index futures were down between 0.1% and 0.4%, while the USD Index was moving sideways near 97.70. Following Thursday's volatile action, crude oil prices edge slightly higher, with the barrel of West Texas Intermediate gaining about 0.3% on the day near $65.70.
GBP/USD finds support and holds steady at around 1.3500 after losing more than 0.5% on Thursday. The Green Party's Hannah Spencer won the contest for the vacant parliamentary seat of Gorton and Denton, beating British Prime Minister Keir Starmer's Labour. "John Curtice, Britain's most respected pollster, called the result a "seismic moment", which means the "future of British politics looks more uncertain than at any stage" since the end of World War Two," Reuters reported.
EUR/USD trades slightly above 1.1800 in the European session on Friday and remains within its tight weekly range.
USD/JPY closed marginally lower on Thursday after posting gains for two consecutive days. The pair stays calm early Friday and fluctuates at around 156.00. The data from Japan showed that the annual inflation in Tokyo, as measured by the change in the Consumer Price Index (CPI), edged higher to 1.6% in February from 1.5% in January. Japan's Finance Minister Satsuki Katayama said that Japan is monitoring the Japanese Yen’s (JPY) slide “with a strong sense of urgency” and is in close communication with the US.
Gold (XAU/USD) treads water below $5,200 for the second straight day on Friday. The benchmark 10-year US Treasury bond yield holds steady at around 4% after losing more than 1% on Thursday, making it difficult for XAU/USD to find direction.
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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