Forex Today: Eurozone inflation report and key US data highlight economic calendar
Here is what you need to know on Tuesday, January 7:
The US Dollar (USD) came under selling pressure at the beginning of the week as risk flows dominated the action. Eurostat will publish December inflation data in the European session on Tuesday. Later in the day, ISM Services PMI report for December and JOLTS Job Openings data for November will be featured in the US economic docket.
On Monday, the Washington Post reported that US President-elect Donald Trump's aides were considering tariffs that would be applied to every country but only cover critical imports. Although Trump disputed this claim by calling the story "just another example of fake news," risk mood improved and made it difficult for the USD to stay resilient against its rivals. After losing more than 0.5% on Monday, the USD Index struggles to stage a rebound in the European morning on Tuesday and stays in negative territory slightly above 108.00. Meanwhile, US stock index futures trade marginally lower on 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 British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.86% | -0.93% | 0.38% | -0.90% | -0.76% | -0.82% | -0.63% | |
| EUR | 0.86% | -0.08% | 1.21% | 0.02% | 0.15% | 0.08% | 0.25% | |
| GBP | 0.93% | 0.08% | 1.29% | 0.09% | 0.23% | 0.15% | 0.32% | |
| JPY | -0.38% | -1.21% | -1.29% | -1.29% | -1.12% | -1.18% | -0.81% | |
| CAD | 0.90% | -0.02% | -0.09% | 1.29% | 0.07% | 0.04% | 0.22% | |
| AUD | 0.76% | -0.15% | -0.23% | 1.12% | -0.07% | -0.07% | 0.09% | |
| NZD | 0.82% | -0.08% | -0.15% | 1.18% | -0.04% | 0.07% | 0.16% | |
| CHF | 0.63% | -0.25% | -0.32% | 0.81% | -0.22% | -0.09% | -0.16% |
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).
Canadian Prime Minister Justin Trudeau announced his resignation on Monday. “This country deserves a real choice in the next election and it has become clear to me that if I’m having to fight internal battles, I cannot be the best option in that election,” he said. USD/CAD fell nearly 1% on Monday and touched its lowest level since mid-December below 1.4300 before correcting higher. At the time of press, the pair was trading in a tight channel at around 1.4320.
EUR/USD benefited from the broad-based USD weakness and registered strong gains on Monday. The pair stays in a consolidation phase near 1.0400 in the European morning on Tuesday. On a yearly basis, the Harmonized Index of Consumer Prices (HICP) is forecast to rise 2.4% in December in the Euro area, up from the 2.2% increase recorded in November.
GBP/USD gathered bullish momentum and broke above 1.2500 on Monday. The pair holds its ground to begin the European session and trades slightly below 1.2550.
USD/JPY touched its highest level since July near 158.50 in the Asian session on Monday but retreated back below 158.00 following a verbal intervention. "The Japanese government has been alarmed by foreign exchange developments, including those driven by speculators, and will take appropriate action against excessive moves," Japan's Finance Minister Katsunobu Kato said.
Gold dropped below $2,620 on Monday but managed to erase a large portion of its daily losses. XAU/USD holds steady at around $2,640 in the European morning on Tuesday.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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