Forex Today: US Dollar consolidates weekly gains ahead of producer inflation data
Here is what you need to know on Friday, October 11:
Following Thursday’s volatile action, markets seems to have stabilized to begin the last trading day of the week. The US economic calendar will feature Producer Price Index (PPI) data for September and the University of Michigan’s Consumer Sentiment Survey for October. In the early American session, Statistics Canada will publish the labor market data for September.
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 strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.25% | 0.33% | 0.04% | 1.35% | 0.74% | 0.98% | -0.21% | |
| EUR | -0.25% | 0.14% | -0.16% | 1.12% | 0.46% | 0.71% | -0.51% | |
| GBP | -0.33% | -0.14% | -0.35% | 0.99% | 0.32% | 0.60% | -0.54% | |
| JPY | -0.04% | 0.16% | 0.35% | 1.32% | 0.70% | 0.90% | -0.23% | |
| CAD | -1.35% | -1.12% | -0.99% | -1.32% | -0.57% | -0.38% | -1.56% | |
| AUD | -0.74% | -0.46% | -0.32% | -0.70% | 0.57% | 0.29% | -0.91% | |
| NZD | -0.98% | -0.71% | -0.60% | -0.90% | 0.38% | -0.29% | -1.17% | |
| CHF | 0.21% | 0.51% | 0.54% | 0.23% | 1.56% | 0.91% | 1.17% |
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).
Inflation in the US, as measured by the change in the Consumer Price Index (CPI), declined to 2.4% on a yearly basis in September from 2.5% in August, the US Bureau of Labor Statistics (BLS) reported on Thursday. Other details of the report showed that the core CPI, which excludes volatile food and energy prices, rose 3.3% on a yearly basis, coming in above the August reading and the market forecast of 3.2%. The monthly core CPI was up 0.3% in September. The US Dollar (USD) failed to benefit from these readings as the weekly Initial Jobless Claims came in at 258,000 in the week ending October 5, up sharply from 225,000 in the previous week. After reaching its highest level in nearly a month at around 103.20 on Thursday, the USD Index closed the day flat and went into a consolidation phase below 103.00 early Friday.
The data published by the UK’s Office for National Statistics showed on Friday that the Gross Domestic Product expanded by 0.2% on a monthly basis in August, matching the market estimate. In the same period, Industrial Production and Manufacturing Production increased by 0.5% and 1.1%, respectively. Although GBP/USD edged slightly higher on the upbeat data, it remains well below 1.3100 in the European session.
EUR/USD closed flat on Thursday as the USD lost its strength in the second half of the day. The pair struggles to gather recovery momentum and trades in a narrow channel slightly below 1.0950 in the European morning. Germany’s Destatis reaffirmed on Friday that the annual CPI rose 1.6% on a yearly basis in September, matching the initial estimate.
USD/CAD extended its uptrend on Thursday and closed the seventh consecutive day in positive territory. Ahead of the Canadian jobs data, the pair trades marginally higher on the day near 1.3750.
USD/JPY closed in the red on Thursday after reversing from the multi-month high it set above 149.60. The pair stays relatively quiet and moves up and down in a tight band below 149.00.
Gold gathered recovery momentum and snapped a six-day losing streak on Thursday. XAU/USD continues to edge higher toward $2,650 on Friday.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.