Forex Today: US Dollar struggles to gather strength after Fed, attention turns to BoE
Here is what you need to know on Thursday, March 20:
The US Dollar (USD) finds it difficult to outperform its rivals on Thursday as markets digest the Federal Reserve's (Fed) policy announcements. The Bank of England (BoE) will release the interest rate decision later in the session and the US economic calendar will feature weekly Initial Jobless Claims data, alongside Existing Homes figures for February.
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 | -0.06% | -0.31% | -0.19% | -0.24% | 0.23% | -0.39% | -0.91% | |
| EUR | 0.06% | -0.37% | -0.52% | -0.17% | 0.16% | -0.34% | -0.88% | |
| GBP | 0.31% | 0.37% | 0.15% | -0.01% | 0.51% | 0.02% | -0.58% | |
| JPY | 0.19% | 0.52% | -0.15% | -0.03% | 0.22% | -0.14% | -0.85% | |
| CAD | 0.24% | 0.17% | 0.01% | 0.03% | 0.27% | -0.15% | -1.22% | |
| AUD | -0.23% | -0.16% | -0.51% | -0.22% | -0.27% | -0.47% | -1.02% | |
| NZD | 0.39% | 0.34% | -0.02% | 0.14% | 0.15% | 0.47% | -0.54% | |
| CHF | 0.91% | 0.88% | 0.58% | 0.85% | 1.22% | 1.02% | 0.54% |
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).
The Fed left the interest rate unchanged at 4.25%-4.5% following the March meeting, as widely anticipated. The revised Summary of Economic Projections showed that policymakers still project a total of 50 basis points (bps) reduction in rates in 2025. The Gross Domestic Product (GDP) growth forecast for this year got revised lower to 1.7% from 2.1% in December's SEP. In the post-meeting press conference, Fed Chairman Powell reiterated that they will not be in a hurry to move on rate cuts, adding that they can maintain policy restraint for longer if the economy remains strong. The USD Index failed to make a decisive move in either direction following the Fed event and closed marginally higher on Wednesday. Early Thursday, the index moves sideways at around 103.50.
The UK's Office for National Statistics reported on Thursday that the ILO Unemployment Rate held steady at 4.4% in the three months to January, as expected. In this period, the Employment Change was up by 144,000. GBP/USD trades marginally lower on the day below 1.3000 following the UK jobs report. Later in the day, the BoE is widely anticipated to maintain its policy settings. There will not be a press conference following the release of the rate decision. Hence, investors are likely to pay close attention to the vote split.
The Swiss National Bank (SNB) will also announce policy decisions on Thursday, and it's expected to lower the policy rate by 25 bps to 0.25%. Following a two-day decline, USD/CHF found support and closed virtually unchanged on Wednesday. The pair fluctuates in a relatively tight channel above 0.8750 in the European morning.
EUR/USD lost about 0.4% on Wednesday and snapped a three-day winning streak. The pair struggles to gain traction and trades below 1.0900 to begin the European session. European Central Bank (ECB) President Christine Lagarde will deliver a speech before the European Parliament on Thursday.
After testing 150.00 on Wednesday, USD/JPY reversed its direction and ended the day in the red. The pair continues to edge lower and trades below 148.50 on Thursday.
Gold closed marginally higher on Wednesday and touched a new record-high above $3,050 in the Asian session on Thursday before going into a consolidation phase below this level.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
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