Forex Today: Risk rally loses steam amid shaky US-Iran ceasefire
Here is what you need to know on Thursday, April 9:
The risk rally that started after the United States (US) and Iran reached a two-week ceasefire has lost its steam, with market adopting a cautious stance early Thursday. In the second half of the day, weekly Initial Jobless Claims and Personal Consumption Expenditures (PCE) Price Index data for February will be featured in the US economic calendar. Additionally, the US Bureau of Economic Analysis (BEA) will publish the final revision to the fourth-quarter Gross Domestic Product (GDP) growth figures.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.17% | -1.49% | -0.46% | -0.60% | -2.06% | -2.40% | -1.17% | |
| EUR | 1.17% | -0.32% | 0.72% | 0.58% | -0.89% | -1.24% | -0.01% | |
| GBP | 1.49% | 0.32% | 0.96% | 0.89% | -0.58% | -0.92% | 0.32% | |
| JPY | 0.46% | -0.72% | -0.96% | -0.15% | -1.59% | -1.92% | -0.73% | |
| CAD | 0.60% | -0.58% | -0.89% | 0.15% | -1.45% | -1.77% | -0.57% | |
| AUD | 2.06% | 0.89% | 0.58% | 1.59% | 1.45% | -0.35% | 0.90% | |
| NZD | 2.40% | 1.24% | 0.92% | 1.92% | 1.77% | 0.35% | 1.25% | |
| CHF | 1.17% | 0.01% | -0.32% | 0.73% | 0.57% | -0.90% | -1.25% |
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).
Wall Street's main indexes registered impressive gains midweek as markets reacted to the de-escalation of the conflict in the Middle East. However, latest headlines from the region suggest that there is renewed uncertainty regarding the sustainability of the ceasefire. Reflecting the negative shift seen in risk sentiment, US stock index futures lose about 0.3% on the day.
Iranian officials argued that Israel's ongoing aggression against Lebanon is a violation of the ceasefire agreement and noted that it would be "unreasonable" to proceed with the negotiations to reach a permanent peace deal with the US. Moreover, Iran's Fars News Agency reported late Wednesday that oil tankers passing through the Strait of Hormuz have been stopped after Israel breached the ceasefire, per Reuters. In the meantime, US President Donald Trump said that all US ships, aircraft, and military personnel will remain in place in, and around, Iran until a real agreement reached and it's fully complied with, warning that there will be a stronger military response if they fail to do so.
The Minutes from the Federal Reserve’s (Fed) March meeting, released on Wednesday, showed that policymakers are in a wait-and-see mode but they acknowledge that risks are becoming more balanced. While some policymakers argued that a protracted conflict in the Middle East could lead to a softening in labor market conditions, others noted that a persistent increase in oil prices heightens the risk of inflation remaining elevated for longer than expected. The US Dollar (USD) Index fell to its weakest level in nearly a month near 98.50 on Wednesday but managed to erase a portion of its daily losses during the American trading hours. Early Thursday, the USD Index clings to moderate gains above 99.00.
Crude Oil prices rebound following Wednesday's sharp decline. As of writing, the barrel of West Texas Intermediate (WTI) was trading near $92.50, rising more than 1% on the day.
Gold (XAU/USD) climbed above $4,850 but reversed its direction to end the day marginally lower on Wednesday. XAU/USD stays in a consolidation phase at around $4,700 in the European morning on Thursday.
EUR/USD erased a portion of its daily gains in the American session but still rose more than 0.5% on Wednesday. The pair struggles to hold its ground early Thursday and fluctuates at around 1.1650.
GBP/USD benefited from the USD weakness and closed in positive territory for the third consecutive day on Wednesday. The pair moves sideways slightly below 1.3400 to start the European session.
USD/JPY stages a rebound and ries toward 159.00 after losing more than 0.6% on Wednesday.
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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