Forex Today: Eyes on US inflation data and Fed Chair Warsh testimony as Oil prices surge
Here is what you need to know on Tuesday, July 14:
Crude Oil prices rise sharply for the second consecutive day on Tuesday as investors grow increasingly concerned about the sustainability of the ceasefire between the United States (US) and Iran. In the second half of the day, the US Bureau of Labor Statistics (BLS) will publish the Consumer Price Index (CPI) data for June. Additionally, Federal Reserve (Fed) Chairman Kevin Warsh will testify on the Semiannual Monetary Policy Report before the US House Financial Services Committee.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.15% | 0.25% | 0.36% | -0.16% | 0.23% | -0.40% | 0.83% | |
| EUR | -0.15% | 0.09% | 0.24% | -0.32% | 0.03% | -0.56% | 0.68% | |
| GBP | -0.25% | -0.09% | 0.09% | -0.41% | -0.06% | -0.65% | 0.63% | |
| JPY | -0.36% | -0.24% | -0.09% | -0.60% | -0.14% | -0.81% | 0.42% | |
| CAD | 0.16% | 0.32% | 0.41% | 0.60% | 0.47% | -0.21% | 1.04% | |
| AUD | -0.23% | -0.03% | 0.06% | 0.14% | -0.47% | -0.59% | 0.58% | |
| NZD | 0.40% | 0.56% | 0.65% | 0.81% | 0.21% | 0.59% | 1.29% | |
| CHF | -0.83% | -0.68% | -0.63% | -0.42% | -1.04% | -0.58% | -1.29% |
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 US military launched strikes for the third consecutive day on Monday and Iranian medie reported explosions in the islands of Kish, Qeshm and Abu Musa, as well as in the port city of Bandar Abbas. In response, Iran attacked US military sites in Kuwait, Bahrain, Jordan and two oil supertankers in the Strait of Hormuz. Meanwhile, the US Central Command said that it has reinstated the blockade of Iranian ports and US President Donald Trump said that the US will "become the guardian" of the Strait of Hormuz and charge a 20% toll for safe passage. The barrel of West Texas Intermediate rose nealry 9% on Monday and was last seen trading at around $80, rising another 2.5% on the day.
The US Dollar (USD) benefited from the risk-averse market atmosphere, with the USD Index closing in positive territory on Monday. The index stays relativey quiet and fluctuates in a narrow range above 101.00. Annual CPI inflation in the US is forecast to soften to 3.8% in June from 4.2% in May.
Waller flags near-term hike risk if core inflation runs hot, keeping Dollar supported
Fed Governor Christopher Waller delivered a moderately more hawkish tone on Monday, with the FXS Speechtracker score at 7/10, above the 6.4/10 historical average, signaling increased sensitivity to upside inflation risks. The explicit warning that another hot core inflation reading this week could force consideration of a near-term rate hike, alongside the insistence on “several months” of lower core inflation before declaring progress, tilts the balance of risks toward tighter policy even as a credible path to 2% without higher rates is still acknowledged. Overall, the combination of concern about core inflation, confidence in the real economy, and determination not to repeat the 2021 mistake is supportive for the Dollar on a risk-adjusted basis.
The FXS Fed Sentiment Index rose by 0.84 points to 127.19, reinforcing that the speech sits firmly in hawkish territory relative to the neutral 100 benchmark. The alignment of a higher FXS Fed Sentiment Index with an above-baseline FXS Speechtracker score underscores that policy risks are skewed toward additional tightening if upcoming core inflation data fail to cool meaningfully.
EUR/USD stays in a consolidation phase below 1.1400 after losing about 0.3% on Monday. European Central Bank President Christine Lagarde will meet with US Secretary of the Treasury Scott Bessent later in the day and she is expected to deliver a speech.
GBP/USD stabilizes near 1.3350 following Monday's bearish action. The UK's Office for National Statistics will publish the monthly Gross Domestic Product data for May later in the week.
After rising about 0.5% on Monday, USD/JPY remains quiet in the European morning on Tuesday and moves sideways above 162.00. Japan’s Finance Minister Satsuki Katayama said early Tuesday that a sharp shift in asset management environment could prompt a review of Government Pension Investment Fund (GPIF) portfolio.
Reserve Bank of New Zealand (RBNZ) Chief Economist Paul Conway said on Tuesday that additional easing of monetary stimulus will probably be needed if inflation from Middle East conflict proves persistent. NZD/USD gathers bullish momentum on Tuesday and trades near 0.5800, rising about 0.8% on the day.
Gold (XAU/USD) lost nearly 3% on Monday and tested $4,000. XAU/USD stages a correction early Tuesday and trades near $4,030.
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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