Forex Today: US Dollar starts critical Fed week under pressure
Here is what you need to know on Monday, December 8:
The US Dollar (USD) weakens against its major rivals on Monday, with the USD Index staying in negative territory below 99.00 following two consecutive weeks of losses. The European economic calendar will feature Sentix Investor Confidence data for December later in the session.
US Dollar Price This Month
The table below shows the percentage change of US Dollar (USD) against listed major currencies this month. US Dollar was the weakest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.56% | -0.70% | -0.57% | -1.13% | -1.46% | -0.91% | -0.02% | |
| EUR | 0.56% | -0.15% | 0.00% | -0.57% | -0.90% | -0.35% | 0.55% | |
| GBP | 0.70% | 0.15% | 0.41% | -0.43% | -0.76% | -0.21% | 0.69% | |
| JPY | 0.57% | 0.00% | -0.41% | -0.56% | -0.91% | -0.35% | 0.54% | |
| CAD | 1.13% | 0.57% | 0.43% | 0.56% | -0.39% | 0.23% | 1.12% | |
| AUD | 1.46% | 0.90% | 0.76% | 0.91% | 0.39% | 0.56% | 1.46% | |
| NZD | 0.91% | 0.35% | 0.21% | 0.35% | -0.23% | -0.56% | 0.90% | |
| CHF | 0.02% | -0.55% | -0.69% | -0.54% | -1.12% | -1.46% | -0.90% |
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).
Growing expectations for a dovish Federal Reserve (Fed) policy outlook have been weighing on the USD since the beginning of the December. On Wednesday, the Fed will announce its interest rate decision and release the revised Summary of Economic Projections (SEP), which could influence the USD's performance heading into the holiday season. Ahead of the Fed meeting, the US Bureau of Labor Statistics will publish the JOLTS Job Openings data for October on Tuesday. Meanwhile, US stock index futures trade modestly higher in the European morning on Monday.
In the Asian session, the data from China showed that Exports expanded by 5.9% on a yearly basis in November, while Imports rose by 1.9% in the same period. In turn, China's Trade Balance, in Chinese Yuan (CNY) terms, for November, widened to CNY792.57 billion from CNY640.40 billion in October.
AUD/USD holds its ground on Monday and fluctuates at around 0.6650 after gaining nearly 1.5% in the previous week. In the Asian session on Tuesday, the Reserve Bank of Australia (RBA) is expected to keep the policy rate unchanged at 3.6%.
USD/JPY stabilizes above 155.00 to start the week. Japan’s Finance Minister Satsuki Katayama said on Monday that he has recently seen one-sided and rapid moves in the foreign exchange market, and reiterated that they will take appropriate actions if necessary.
Following the choppy action seen in the second half last week, EUR/USD edges higher early Monday and trades in positive territory above 1.1660.
GBP/USD stays in a consolidation phase above 1.3300 in the European session on Monday, after rising about 0.75% in the previous week.
Gold failed to make a decisive move in either direction last week but managed to hold above $4,200. In the European morning on Monday, XAU/USD trades marginally higher on the day above $4,210.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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