Forex Today: Comments from central bankers at ECB Forum to drive markets
Here is what you need to know on Tuesday, July 1:
Investors will keep a close eye on comments from central bankers as the European Central Bank's (ECB) Forum on Central Banking held in Sintra, Portugal, gets underway. Federal Reserve (Fed) Chairman Jerome Powell, ECB President Christine Lagarde, Bank of England (BoE) Governor Andrew Bailey and Bank of Japan (BoJ) Governor Kazuo Ueda will participate in a policy panel later in the day.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.46% | -0.32% | -0.73% | -0.65% | -0.73% | -0.89% | -0.92% | |
| EUR | 0.46% | 0.10% | -0.25% | -0.19% | -0.29% | -0.42% | -0.48% | |
| GBP | 0.32% | -0.10% | -0.55% | -0.30% | -0.39% | -0.54% | -0.58% | |
| JPY | 0.73% | 0.25% | 0.55% | 0.07% | 0.05% | -0.12% | -0.15% | |
| CAD | 0.65% | 0.19% | 0.30% | -0.07% | -0.13% | -0.24% | -0.28% | |
| AUD | 0.73% | 0.29% | 0.39% | -0.05% | 0.13% | -0.15% | -0.19% | |
| NZD | 0.89% | 0.42% | 0.54% | 0.12% | 0.24% | 0.15% | -0.04% | |
| CHF | 0.92% | 0.48% | 0.58% | 0.15% | 0.28% | 0.19% | 0.04% |
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 a quiet European session, the US Dollar (USD) came under renewed selling pressure in the American session on Monday and the USD Index lost about 0.5%. White House press secretary Karoline Leavitt told reporters on Monday that US President Donald Trump sent a handwritten note to Fed Chairman Powell, urging him to lower interest rates. She added that Trump believes interest rates should be lowered to about 1%.
On Tuesday, the US economic calendar will feature JOLTS Job Openings data for May and the Institute for Supply Management (ISM) will release the Manufacturing Purchasing Managers' Index (PMI) report for June. In the European session, the USD Index struggles to gain traction and stays in negative territory at around 96.70. Meanwhile, US stock index futures lose between 0.1% and 0.2%, reflecting a cautious market stance.
EUR/USD benefited from the broad-based selling pressure surrounding the USD and climbed above 1.1800 for the first time since September 2021. The pair corrects lower in the European morning and trades near 1.1780. Eurostat will publish preliminary June Harmonized Index of Consumer Prices (HICP) data for the Eurozone.
BoE Governor Bailey reiterated on Tuesday that the path of interest rates will continue to be gradually downwards. He further added that the labour market is softening but noted that they have to watch very carefully for consequences of inflation. Following these comments, GBP/USD clings to modest daily gains at around 1.3750.
After posting small losses on Monday, USD/JPY gathers bearish momentum and loses about 0.5% below 143.50 in the European morning on Tuesday.
The data from China showed that the Caixin Manufacturing PMI improved to 50.4 in June from 48.3 in May. This reading came in better than the market expectation of 49. After rising nearly 0.8% on Monday, AUD/USD continues to stretch higher and trades at a fresh 2025-top near 0.6600.
Gold extends its rebound from multi week lows and gains more than 1% on the day to trade around $3,350.
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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