Forex Today: US Dollar stays near multi-month lows ahead of key PMI data
Here is what you need to know on Friday, August 21:
Following the sharp decline seen midweek, the US Dollar (USD) Index struggles to stage a rebound and stays slightly above the three-month low it set near 98.50 on Thursday. Preliminary August Manufacturing and Services Purchasing Managers' Index (PMI) data from Germany, the Eurozone, the UK and the US will be featured in the economic calendar on Friday.
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 | -1.10% | -0.89% | -0.24% | -0.82% | -0.79% | -1.30% | -1.50% | |
| EUR | 1.10% | 0.35% | 0.89% | 0.31% | 0.26% | -0.21% | -0.40% | |
| GBP | 0.89% | -0.35% | 0.59% | -0.07% | -0.09% | -0.56% | -0.80% | |
| JPY | 0.24% | -0.89% | -0.59% | -0.58% | -0.62% | -1.09% | -1.29% | |
| CAD | 0.82% | -0.31% | 0.07% | 0.58% | -0.03% | -0.50% | -0.73% | |
| AUD | 0.79% | -0.26% | 0.09% | 0.62% | 0.03% | -0.46% | -0.73% | |
| NZD | 1.30% | 0.21% | 0.56% | 1.09% | 0.50% | 0.46% | -0.24% | |
| CHF | 1.50% | 0.40% | 0.80% | 1.29% | 0.73% | 0.73% | 0.24% |
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).
In the absence of high-impact macroeconomic data releases on Thursday, the US Dollar's selloff lost steam but the currency failed to gather strength against its major rivals as investors assessed the impact of the US Treasury Department's decision to boost long-term bond sales on the Federal Reserve's policy outlook.
US Dollar support seen as US sanctions risk lifts inflation expectations
DBS Group Research economist Chang Wei Liang cautions that the recent adjustment to US Treasury buybacks is unlikely to be a game-changer for markets. He argues that, “without any meaningful change to the US fiscal trajectory (given that the US budget is set by Congress and not the Treasury), tweaks around buybacks can only have a small, transient impact on markets.”
At the same time, Chang flags geopolitical risks that could reinforce the Dollar’s bid. He notes that “an expected tightening of US sanctions on Iran to be announced on Monday could pose unintended consequences, including risks of bolstering inflation expectations that lift both US yields and the USD.”
Meanwhile, St. Louis Fed President Alberto Musalem delivered a hawkish speech on Thursday, with an FXS Speechtracker score of 7/10. The emphasis on strong growth, accommodative financial conditions, underlying inflation stuck around 2.5%-3%, and the notion that hiking rates now could avert more aggressive action later underscored a bias toward pre-emptive tightening even as Fed credibility and policy independence are reaffirmed. References to potential supply shocks from a “super El Nino,” high input costs, and some credit crowding out reinforced an inflation-focused narrative that is supportive of the Dollar on balance, while the refusal to prejudge the September FOMC kept near-term rate expectations data-dependent.
The UK's Office for National Statistics announced on Friday that Retail Sales declined by 0.5% on a monthly basis in July, following the 0.7% increase recorded in June. GBP/USD showed no immediate reaction to this data and was last seen trading with small gains at 1.3650.
Following Thursday's choppy action, EUR/USD edges higer in the European morning on Friday and trades near 1.1700.
Gold gathers bullish momentum to start the European session and trades at its highest level since late May above $4,550.
According to TD Securities, recent policy signals remain broadly constructive for bullion, with “the signal of the Treasury looking to support the longer end, alongside a Fed willing to look past higher energy prices” seen as “enough to support the yellow metal in the near-term.” However, the bank cautions that “with the market still pricing in hikes for 2027, the next leg higher for gold is unlikely to materialize before the broader market becomes more convinced that the Fed remains on hold.”
USD/JPY rose about 0.6% on Thursday and erased a large portion of Wednesday's losses. The pair loses its traction early Friday and trades marginally lower on the day below 159.00.
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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