Forex Today: US Dollar consolidates gains as focus shifts to cricital inflation report
Here is what you need to know on Friday, September 11:
The US Dollar (USD) stabilizes in the early European session on Friday after gathering strength against its rivals on Thursday. August Consumer Price Index (CPI) data from the United States (US), which could influence the market expectation of the Federal Reserve's next policy step, will be watched closely by market participants in the second half of the day. The US economic calendar will also feature the University of Michigan's preliminary Consumer Sentiment Index 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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.05% | -0.00% | -1.13% | 0.02% | 0.37% | 0.84% | 0.54% | |
| EUR | -0.05% | -0.06% | -1.18% | -0.03% | 0.33% | 0.79% | 0.49% | |
| GBP | 0.00% | 0.06% | -1.23% | 0.03% | 0.39% | 0.85% | 0.54% | |
| JPY | 1.13% | 1.18% | 1.23% | 1.25% | 1.60% | 2.05% | 1.74% | |
| CAD | -0.02% | 0.03% | -0.03% | -1.25% | 0.40% | 0.82% | 0.52% | |
| AUD | -0.37% | -0.33% | -0.39% | -1.60% | -0.40% | 0.46% | 0.15% | |
| NZD | -0.84% | -0.79% | -0.85% | -2.05% | -0.82% | -0.46% | -0.30% | |
| CHF | -0.54% | -0.49% | -0.54% | -1.74% | -0.52% | -0.15% | 0.30% |
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 data from the US showed on Thursday that the Producer Price Index (PPI) rose by 5.4% on a yearly basis in August. This print followed the 4.8% increase recorded in July and came in above the market expectation of 5.3%. The USD Index gathered bullish momentum and rose 0.3% on the day. Additionally, surging crude Oil prices weighed on market mood and further supported the USD.
The barrel of West Texas Intermediate (WTI) gained nearly 7% on Thursday and touched its highest level since late May above $100. Early Friday, WTI corrects lower and trades at around $97.50. The Financial Times reported earlier in the day that Iran and Gulf states are set to hold a meeting aimed at securing buy-in for a temporary deal to manage shipping through the Strait of Hormuz.
Oil shock revives inflation worries as Middle East shipping risks escalate
Analysts at Danske Bank stress that the latest jump in Brent is “adding renewed inflation pressure and feeding through into global rates markets.” They argue that “markets are starting to realise that the Strait of Hormuz disruptions are not going away anytime soon, especially from recent comments that signal no clear resolution in sight.” The bank highlights that “yesterday, Iran-backed Houthi rebels' seizure of Mocha on Yemen's Red Sea coast brings them closer to the Bab al-Mandeb Strait, a critical passage for seaborne energy flows,” and warns that, with the group “already targeting Saudi assets and shipping, markets are pricing a higher risk of disruption to exports and tanker traffic.”
Investors expect the annual headline CPI inflation in the US to hold steady at 3.4% in August. The core CPI, which excludes volatile food and energy prices, is seen rising 0.2% on a monthly basis. Ahead of this key data, the USD Index moves sideways near 99.00, while US stock index futures rise about 0.4%.
Fed pause still base case as Commerzbank flags political pressure and data risk
Analysts at Commerzbank say they are “sticking to our forecast of unchanged US key interest rates,” while stressing that they are “aware of the massive uncertainty surrounding this prediction.” The bank argues that “if progress toward the 2% target suffers a setback in August, an interest rate hike would help steer the inflation rate back in the right direction,” but nonetheless concludes: “We therefore stand by our forecast that the Fed will not raise key interest rates next week and will confirm the target range at 3.50–3.75%.” In their view, “a Fed rate hike is a risk, but not our base scenario as the US central bank is under considerable political pressure.”
The European Central Bank (ECB) raised its key rates by 25 basis points (bps) following the September meeting, as expected, and revised up inflation projections for 2027 and 2028. EUR/USD, pressured by the broad-based USD strength, registered small losses on Thursday.
Lagarde’s resilient growth message keeps Euro supported despite inflation risks
The FXS Speechtracker scored ECB President Christine Lagarde's press conference a 6.4 versus a 6.0 historic average. Lagarde highlighted resilient Euro area growth, a robust labour market, and an improved near-term outlook. Emphasis on solid manufacturing, recovering services, rebounding consumer confidence, and investment-led support to growth pointed away from imminent aggressive easing. At the same time, guidance that headline inflation will stay above target through the first half of 2027, with energy and food shocks potentially feeding into core, reinforced a cautious stance on cutting rates and added a hawkish tilt.
USD/JPY staged a rebound on Thursday and gained more than 0.5%. In the European session on Friday, the pair stays in a consolidation phase above 154.00.
Gold (XAU/USD) came under heavy bearish pressure on Thursday as US Treasury bond yields pushed higher following the PPI data. After losing nearly 2% yesterday, XAU/USD corrects higher and trades at around $4,350.
GBP/USD holds steady above 1.3500 after posting moderate losses on Thursday.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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