Forex Today: The calm before the BoC and Fed storm
Here is what you need to know on Wednesday, September 17:
The risk rally on global indices takes a breather amid a typical market caution heading into the key central bank event risks, with the US Federal Reserve (Fed) policy announcements eagerly awaited.
Weakening labor market and sticky inflation in the United States (US) have ramped up bets for aggressive policy easing by the Fed this year. For the September decision due later in the day, a 25 basis points (bps) interest rate cut is fully priced in.
The persistent dovish sentiment surrounding the Fed keeps the US Dollar (USD) miring in over two-month lows against its six major currency rivals. Early Wednesday, the USD Index is seeing a modest uptick on pre-Fed position readjustments, near 96.70.
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 | -1.00% | -0.63% | -0.79% | -0.59% | -0.49% | -0.37% | -1.16% | |
| EUR | 1.00% | 0.41% | 0.16% | 0.41% | 0.56% | 0.60% | -0.16% | |
| GBP | 0.63% | -0.41% | -0.18% | 0.00% | 0.15% | 0.19% | -0.68% | |
| JPY | 0.79% | -0.16% | 0.18% | 0.16% | 0.34% | 0.41% | -0.37% | |
| CAD | 0.59% | -0.41% | -0.00% | -0.16% | 0.21% | 0.18% | -0.68% | |
| AUD | 0.49% | -0.56% | -0.15% | -0.34% | -0.21% | 0.04% | -0.71% | |
| NZD | 0.37% | -0.60% | -0.19% | -0.41% | -0.18% | -0.04% | -0.86% | |
| CHF | 1.16% | 0.16% | 0.68% | 0.37% | 0.68% | 0.71% | 0.86% |
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).
On Tuesday, the data published by the US Census Bureau showed that Retail Sales rose by 0.6% on a monthly basis in August to $732 billion, following a 0.6% revised increase in July and came in better than the market expectation of 0.2%.
Annually, Retail Sales were up 5% in the same period. The data failed to move the markets’ pricing for the Fed verdict this Wednesday. Markets continue to pencil in 67.9 bps of cuts by the end of the year, according to Refinitiv’s interest rate probabilities.
Traders now eagerly await the Fed’s interest rate decision, Summary of Economic Projections (SEP), the so-called Dot Plot chart, and Chairman Jerome Powell’s press conference for fresh hints on the scope and the timing of the central bank’s further rate cuts.
GBP/USD looks to extend its corrective decline from two-month highs of 1.3672 following the UK Consumer Price Index (CPI) data for August. The pair is trading on the back foot near 1.3650, as of writing.
The UK's Office for National Statistics (ONS) showed that the annual CPI rose by 3.8% last month, remaining at the highest level since January 2024. The market forecast was for a 3.9% growth.
EUR/USD struggles amid the broad-based USD rebound. A fresh bout of profit-taking engulfs the pair in the early European trading hours after having reached the highest levels in four years at 1.1879 on Tuesday. European Central Bank (ECB) President Christine Lagarde is scheduled to speak later in the session ahead of the Fed event.
USD/CAD is attempting a tepid bounce to retake 1.3750, snapping a two-day downtrend early Wednesday. Traders resort to position adjustments ahead of the Bank of Canada (BoC) and the Fed policy decisions. In Tuesday’s early American session, Statistics Canada published the CPI data for August, which showed that inflation rose to 1.9% on a year-over-year (YoY) basis from 1.7% in July. Markets expected a 2% reading.
USD/JPY witnessed some volatility in the early Asian session, falling as low as 146.21 before rebounding to 146.60, where it now wavers. The pair follows the USD price action, while benefiting from renewed weakness in the Japanese Yen (JPY) after a fourth consecutive month of declines in exports hurt JPY buyers.
Gold has paused its record rally to above $3,700 as traders look to cash in on their Gold long positions, bracing for intense volatility on the Fed showdown. In the early European session, XAU/USD is posting moderate losses at around $3,680.
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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