Forex Today: Markets remain calm to begin big central bank week
Here is what you need to know on Monday, March 17:
Major currency pairs fluctuate in familiar ranges ahead of this week's highly-anticipated monetary policy announcements by major central banks, including the Federal Reserve (Fed) and the Bank of Japan (BoJ). In the second half of the day, the US economic calendar will feature the NY Empire State Manufacturing Index for March and Retail Sales data for February.
After declining sharply in the first week of March, the US Dollar (USD) Index stabilized and closed the previous week with small losses. Early Monday, the USD Index moves sideways slightly below 104.00. Meanwhile, US stock index futures were last seen losing between 0.5% and 0.7%, reflecting a cautious market mood. US President Donald Trump reiterated early Monday that he will impose reciprocal and sectoral tariffs on April 2, adding that they have no intentions of making exemptions on steel and aluminum tariffs.
US Dollar PRICE This month
The table below shows the percentage change of US Dollar (USD) against listed major currencies this month. US Dollar was the weakest against the Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -4.37% | -2.50% | -0.52% | -0.55% | -1.56% | -2.31% | -1.67% | |
| EUR | 4.37% | 1.96% | 4.05% | 4.01% | 2.94% | 2.15% | 2.83% | |
| GBP | 2.50% | -1.96% | 2.02% | 2.00% | 0.95% | 0.19% | 0.84% | |
| JPY | 0.52% | -4.05% | -2.02% | -0.01% | -1.05% | -1.81% | -1.16% | |
| CAD | 0.55% | -4.01% | -2.00% | 0.01% | -1.03% | -1.78% | -1.14% | |
| AUD | 1.56% | -2.94% | -0.95% | 1.05% | 1.03% | -0.76% | -0.11% | |
| NZD | 2.31% | -2.15% | -0.19% | 1.81% | 1.78% | 0.76% | 0.65% | |
| CHF | 1.67% | -2.83% | -0.84% | 1.16% | 1.14% | 0.11% | -0.65% |
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 closed marginally higher on Friday after posting losses for two consecutive days. In the European morning on Monday, the pair moves up and down in a narrow channel below 1.0900.
During the Asian trading hours on Monday, the data from China showed that Retail Sales rose by 4% on a yearly basis in February. This reading followed the 3.7% increase recorded in January and came in line with the market expectation. In the same period, Industrial Production expanded by 5.9%, surpassing the market expectation of 5.3%. AUD/USD holds its ground on Monday and trades in positive territory above 0.6330.
USD/CAD lost about 0.5% on Friday and closed the previous week virtually unchanged. The pair stays in a consolidation phase above 1.4350 early Monday. On Tuesday, markets will pay close attention to February Consumer Price Index (CPI) data from Canada.
GBP/USD edged lower in the second half of last week but managed to stabilize above 1.2900. On Thursday, the Bank of England is expected to announce no changes to the monetary policy settings.
Gold extended its weekly rally to a fresh record-high above $3,000 early Friday before retreating below this level amid profit-taking into the weekend. XAU/USD moves sideways at around $2,990 in the European morning on Monday.
USD/JPY rose more than 0.5% on Friday and continued to stretch higher toward 149.00 at the weekly opening. The BoJ will release monetary policy decisions during the Asian trading hours 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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