Forecasting the upcoming week: Warsh shares the spotlight with central banks
The United States (US) Federal Reserve (Fed) had a busy week. On Monday, the Fed asked local New York banks about their positions in USD/JPY, fueling speculation that the US may be preparing to work with Japan on the Japanes Yen's (JPY) weakness. The news triggered a sharp US Dollar (USD) sell-off at the beginning of the week.
Mid-week, the Fed had its monetary policy meeting. The central bank held its target range for the federal funds rate unchanged at 3.50%-3.75%, as expected. Chairman Jerome Powell's press conference was focused on politics, Powell's future, and the subpoena, topics he declined to address. On a positive note, Powell highlighted clear improvements in economic growth and a decrease in risks related to both inflation and employment.
The US Dollar Index (DXY) is trading near the 96.90 price region, recovering almost all its weekly losses after US President Donald Trump finally nominated former Fed Governor Kevin Warsh as the next Fed Chair on Friday. The US Senate must now confirm the nomination. On another note, the US will publish next week the Institute for Supply Management's (ISM) Manufacturing Purchasing Managers Index (PMI) for January, MBA mortgage applications, January Challenger Job Cuts, and Initial Jobless Claims.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.82% | 0.79% | 0.96% | 0.77% | 1.08% | 0.76% | 0.86% | |
| EUR | -0.82% | -0.03% | 0.11% | -0.05% | 0.26% | -0.10% | 0.04% | |
| GBP | -0.79% | 0.03% | 0.15% | -0.02% | 0.29% | -0.04% | 0.07% | |
| JPY | -0.96% | -0.11% | -0.15% | -0.19% | 0.11% | -0.22% | -0.11% | |
| CAD | -0.77% | 0.05% | 0.02% | 0.19% | 0.30% | -0.01% | 0.09% | |
| AUD | -1.08% | -0.26% | -0.29% | -0.11% | -0.30% | -0.32% | -0.22% | |
| NZD | -0.76% | 0.10% | 0.04% | 0.22% | 0.00% | 0.32% | 0.10% | |
| CHF | -0.86% | -0.04% | -0.07% | 0.11% | -0.09% | 0.22% | -0.10% |
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).
EUR/USD is trading near the 1.1880 price zone after the USD recovered and claimed back almost all the ground lost in the week. Next week, the Hamburg Commercial Bank (HCOB) will publish the German and the Eurozone Manufacturing, Services, and Composite PMIs. The Eurozone will publish the ECB Bank Lending Survey and the Eurozone December Producer Price Index (PPI). Germany will offer December Factory Orders and Industrial Production data.
GBP/USD is trading close to the 1.3600 level as the Bank of England (BoE) is expected to announce its monetary policy decision on Thursday. BoE Governor Andrew Bailey’s press conference will follow, providing fresh insights on the central bank’s path forward on interest rates. The UK calendar includes the final S&P Global January PMIs and the Halifax House Prices report.
USD/JPY is trading near the 154.50 price zone, trimming back almost even after Tokyo CPI figures showed inflation cooling in January. Headline inflation rose 1.5% YoY after 2% in December, while underlying measures eased to 2%, below forecasts. This moderation in price pressures reduces the urgency for the Bank of Japan (BoJ) to raise interest rates.
USD/CAD is trading near the 1.3580 price zone, with the Canadian Dollar (CAD) sitting over the USD even after Canadian data showed that the economy stalled in November, with GDP flat on the month after contracting by 0.3% previously and missing expectations for a 0.1% increase.
The Canadian calendar will offer the January S&P Global PMIs and Ivey PMIs.
Gold is trading near the $4,880 price zone, having lost all weekly gains after reaching a record high of $5,598, as some traders took profits and the US Dollar (USD) rose sharply.
Anticipating economic perspectives: Voices on the horizon
Monday, February 2:
- BoE’s Breeden.
- Fed’s Bostic.
Tuesday, February 3:
- Fed’s Barkin.
Wednesday, February 4:
- Fed’s Cook.
Thursday, February 5:
- BoE’s Governor Bailey.
- Fed’s Bostic.
- Bank of Canada (BoC) Governor Macklem.
Friday, February 6 :
- European Central Bank’s (ECB) Cipollone.
- ECB's Kocher.
- BoE's Pill.
- Fed's Jefferson.
Central banks' meetings and upcoming data releases to shape monetary policies
Monday, February 2:
- German December Retail Sales.
- US ISM Manufacturing PMI
Tuesday, February 3:
- Reserve Bank of Australia (RBA) monetary policy decision.
- US December Jolts Job Openings.
Wednesday, February 4:
- Eurozone January Harmonized Index of Consumer Prices (HICP).
- US January ADP Employment Change.
Thursday, February 5:
- Australian December Trade Balance.
- Eurozone December Retail Sales.
- Bank of England (BoE) monetary policy decision.
- European Central Bank (ECB) monetary policy decision.
Friday, February 6 :
- Canada January Net Change in Employment.
- US January Nonfarm Payrolls.
- US February Michigan Consumer Sentiment Index.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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