Forex Today: US Dollar weakness continues ahead of inflation data
Here is what you need to know on Friday, June 27:
The US Dollar (USD) struggles to find demand early Friday, with the USD Index staying in negative territory below 97.50 after posting losses for four consecutive days. In the second half of the day, the US Bureau of Economic Analysis (BEA) will release the Personal Consumption Expenditures (PCE) Price Index data, the Federal Reserve's (Fed) preferred gauge of inflation, for May.
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 British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -2.20% | -2.42% | -1.56% | -0.83% | -1.83% | -2.01% | -2.23% | |
| EUR | 2.20% | -0.25% | 0.69% | 1.40% | 0.34% | 0.20% | -0.07% | |
| GBP | 2.42% | 0.25% | 0.99% | 1.66% | 0.59% | 0.45% | 0.18% | |
| JPY | 1.56% | -0.69% | -0.99% | 0.72% | -0.30% | -0.40% | -0.76% | |
| CAD | 0.83% | -1.40% | -1.66% | -0.72% | -0.96% | -1.18% | -1.45% | |
| AUD | 1.83% | -0.34% | -0.59% | 0.30% | 0.96% | -0.16% | -0.41% | |
| NZD | 2.01% | -0.20% | -0.45% | 0.40% | 1.18% | 0.16% | -0.27% | |
| CHF | 2.23% | 0.07% | -0.18% | 0.76% | 1.45% | 0.41% | 0.27% |
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 risk-positive market atmosphere and mixed macroeconomic data releases from the US caused the USD to continue to weaken against its rivals on Thursday. The BEA reported that the US' Gross Domestic Product (GDP) contracted at an annual rate of 0.5% in the first quarter, compared to the market expectation and the previous estimate of -0.2%. On a positive note, Durable Goods Orders rose at a stronger pace than forecast in May, while the weekly Initial Jobless Claims declined to 236,000 from 245,000 in the previous week. Reflecting the upbeat mood, Wall Street's main indexes gained about 1% on Thursday. In the European session on Friday, US stock index futures trade marginally higher.
The data from Japan showed in the Asian session that the Tokyo Consumer Price Index rose 3.1% on a yearly basis in June, down from the 3.4% increase recorded in May. After falling more than 0.5% on Thursday, USD/JPY fluctuates in a tight channel at around 144.50 on Friday.
USD/CAD stays in a consolidation phase slightly below 1.3650 after falling more than 0.6% on Thursday. Statistics Canada will publish monthly GDP data for April later in the day.
EUR/USD holds its ground and trades above 1.1700 in the European morning on Friday. The European Commission will release business and economic sentiment data for June.
GBP/USD moves sideways in a narrow band below 1.3750 after registering its highest daily close in over three years on Thursday.
Gold failed to benefit from the selling pressure surrounding the USD on Thursday and ended the day with small losses. XAU/USD extends its weekly slide on Friday and trades below $3,300, losing more than 1% on a daily basis.
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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