Forex Today: US Dollar stabilizes as focus shifts to key data releases, central bank speak
Here is what you need to know on Wednesday, December 4:
The action in foreign exchange markets remain choppy early Wednesday as investors refrain from taking large positions ahead of key events. Bank of England (BoE) Governor Andrew Bailey, European Central Bank (ECB) President Christine Lagarde and Federal Reserve (Fed) Chairman Jerome Powell will be delivering speeches later in the day. The US economic calendar will feature ADP Employment Change and ISM Services PMI data for November.
Following Monday's rebound, the US Dollar (USD) Index lost its momentum and registered small losses on Tuesday. The index fluctuates in a tight range below 106.50 early Wednesday, while US stock index futures trade in positive territory. Powell will participate in a moderated discussion at the New York Times DealBook Summit, starting at 18:45 GMT.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.59% | 0.38% | 0.32% | 0.54% | 1.10% | 1.12% | 0.65% | |
| EUR | -0.59% | -0.25% | -0.24% | -0.05% | 0.60% | 0.53% | 0.07% | |
| GBP | -0.38% | 0.25% | -0.02% | 0.21% | 0.86% | 0.79% | 0.30% | |
| JPY | -0.32% | 0.24% | 0.02% | 0.20% | 0.81% | 0.82% | 0.26% | |
| CAD | -0.54% | 0.05% | -0.21% | -0.20% | 0.72% | 0.58% | 0.09% | |
| AUD | -1.10% | -0.60% | -0.86% | -0.81% | -0.72% | -0.07% | -0.55% | |
| NZD | -1.12% | -0.53% | -0.79% | -0.82% | -0.58% | 0.07% | -0.46% | |
| CHF | -0.65% | -0.07% | -0.30% | -0.26% | -0.09% | 0.55% | 0.46% |
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).
Following news of South Korean President Yoon Suk Yeo declaring martial law, USD/KRW surged to its highest level in two years above 1,440 during the American trading hours on Tuesday. In the Asian session on Wednesday, the Bank of Korea said that it will deploy various measures to stabilize the Korean Won exchange rate. Additionally, South Korea’s Parliament stepped in hours after President Yoon Suk Yeol’s announcement to soundly reject the martial law call and opposition parties submitted an impeachment bill against the president. Following these developments, USD/KRW staged a deep correction and was last seen losing 0.6% on the day at around 1,409.
EUR/USD struggled to gather bullish momentum and posted small gains on Tuesday. The pair holds its ground in the European morning on Wednesday and trades above 1.0500. ECB President Lagarde will testify before the Committee on Economic and Monetary Affairs of the European Parliament in Brussels, Belgium, starting at 13:30 GMT.
GBP/USD closed with small gains on Tuesday and continued to edge higher toward 1.2700 early Wednesday. BoE Governor Bailey's pre-recorded keynote interview at the Financial Times Live Global Boardroom will be released at 09:00 GMT.
The data from Australia showed on Wednesday that the Gross Domestic Product (GDP) grew at an annual rate of 0.8% in the third quarter. This reading followed the 1% growth recorded in the second quarter and missed the market expectation of 1.1%. AUD/USD turned south following the disappointing data and dropped to its weakest level since early August near 0.6400. The pair stages a correction in the European morning and trades near 0.6450.
After closing the second consecutive day virtually unchanged on Tuesday, USD/JPY gains traction and trades in positive territory above 150.00 early Wednesday.
Gold failed to make a decisive move in either direction and closed virtually unchanged on Tuesday. XAU/USD extends its sideways grind below $2,650 in the European morning on Wednesday.
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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