Forex Today: Big central bank week begins in a calm manner
Here is what you need to know on Monday, September 15:
Major currency pairs trade in familiar ranges to start the week as investors gear up for key macroeconomic data releases and central bank meetings. The European economic calendar will feature Trade Balance data for July and the Federal Reserve Bank of New York will publish the Empire State Manufacturing Index data for September later in the day.
US Dollar Price Last 7 Days
The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the weakest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.21% | -0.56% | -0.53% | 0.00% | -1.64% | -1.11% | -0.25% | |
| EUR | 0.21% | -0.36% | -0.24% | 0.20% | -1.42% | -0.86% | -0.04% | |
| GBP | 0.56% | 0.36% | 0.02% | 0.56% | -1.07% | -0.51% | 0.31% | |
| JPY | 0.53% | 0.24% | -0.02% | 0.46% | -1.14% | -0.73% | 0.30% | |
| CAD | -0.00% | -0.20% | -0.56% | -0.46% | -1.54% | -1.06% | -0.28% | |
| AUD | 1.64% | 1.42% | 1.07% | 1.14% | 1.54% | 0.57% | 1.39% | |
| NZD | 1.11% | 0.86% | 0.51% | 0.73% | 1.06% | -0.57% | 0.82% | |
| CHF | 0.25% | 0.04% | -0.31% | -0.30% | 0.28% | -1.39% | -0.82% |
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).
Credit rating agency Fitch announced late Friday that it downgraded France's sovereign credit score to A+ from AA-, noting that it sees a high likelihood of the political deadlock continuing beyond the election. Fitch also said that it expects the upcoming budget negotiations to produce a more diluted fiscal consolidation package than that proposed by the outgoing administration. After ending the previous week marginally higher, EUR/USD stays in a consolidation phase above 1.1700 in the European session on Monday. During the American trading hours, ECB President Christine Lagarde will speak in the event titled "Conversations for tomorrow" on the occasion of the 25th anniversary of the Institut Montaigne in Paris, France.
The data from China showed early Monday that Retail Sales rose by 3.4% on a yearly basis in August. This print followed the 3.7% increase reported in July and came in weaker than the market expectation of 3.8%. In the meantime, Industrial Production expanded by 5.2% in this period, missing analysts' estimate for a 5.8% growth. AUD/USD showed no reaction to these data and was last seen posting small daily gains above 0.6650.
The US Dollar (USD) Index ended the previous week virtually unchanged. In the European morning on Monday, the index fluctuates in a narrow channel slightly above 97.50. On Wednesday, the Federal Reserve (Fed) will announce monetary policy decisions and publish the revised Summary of Economic Projections (SEP), also known as the dot-plot.
GBP/USD holds its ground and trades comfortably above 1.3550 to start the week. The UK's Office for National Statistics (ONS) will publish the July employment report and August inflation data on Tuesday and Wednesday, respectively, before the Bank of England (BoE) releases the interest rate decision on Thursday.
USD/CAD extends its sideways grind above 1.3800 after failing to make a decisive move in either direction last week. August Consumer Price Index (CPI) data and the Bank of Canada policy meeting will be watched closely by market participants later in the week.
USD/JPY trades in a narrow band at around 147.50 in the European morning on Monday. The Bank of Japan's policy decisions will be announced during the Asian trading hours on Friday.
After setting a new record high in the first half of the previous week, Gold entered a consolidation phase and moved up and down in a tight channel heading into the weekend. XAU/USD remains calm on Monday and holds steady below $3,650.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
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