Forex Today: US Dollar corrects lower ahead of consumer sentiment data
Here is what you need to know on Friday, February 6:
The US Dollar (USD) Index edges lower early Friday after touching its highest level in two weeks near 98.00 on Thursday. In the second half of the day, the University of Michigan (UoM) will publish the preliminary Consumer Confidence data for February. The Canadian economic calendar will feature January employment data and investors will pay close attention to comments from central bankers throughout 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 strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.47% | 0.91% | 1.18% | 0.61% | -0.05% | 0.61% | 0.64% | |
| EUR | -0.47% | 0.39% | 0.74% | 0.13% | -0.52% | 0.17% | 0.16% | |
| GBP | -0.91% | -0.39% | 0.23% | -0.26% | -0.92% | -0.26% | -0.23% | |
| JPY | -1.18% | -0.74% | -0.23% | -0.55% | -1.23% | -0.53% | -0.80% | |
| CAD | -0.61% | -0.13% | 0.26% | 0.55% | -0.62% | 0.02% | 0.03% | |
| AUD | 0.05% | 0.52% | 0.92% | 1.23% | 0.62% | 0.66% | 0.68% | |
| NZD | -0.61% | -0.17% | 0.26% | 0.53% | -0.02% | -0.66% | 0.04% | |
| CHF | -0.64% | -0.16% | 0.23% | 0.80% | -0.03% | -0.68% | -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).
Major equity indexes in the US lost more than 1% on Thursday, further supporting the USD during the American trading hours. In the European morning on Friday, US stock index futures are down between 0.2% and 0.5%, reflecting a risk-averse market atmosphere. The data from the US showed on Thursday that there were 6.54 million Job Openings in December. This print came in worse than the market expectation of 7.2 million.
The European Central Bank (ECB) left key rates unchanged, as expected, following the February policy meeting. In the press conference, ECB President Christine Lagarde noted that a stronger Euro (EUR) could bring inflation down more than expected. Although Lagarde added that they don't have a target for the Euro exchange rate, she noted that they will continue to keep a close eye on the situation. EUR/USD lost more than 0.2% on Thursday and continued to push lower in the early Asian session on Friday before staging a rebound. At the time of press, EUR/USD, was trading slightly below 1.1800.
The Bank of England (BoE) announced on Thursday that they maintained the bank rate at 3.75% after an unexpectedly close vote. Four members of the Monetary Policy Committee voted in favor of a rate cut. BoE Governor Bailey said that disinflation is running ahead of the schedule they projected in November. Regarding the rate outlook, "judgements around further rate cuts will become a closer call," Bailey added. Pound Sterling came under heavy selling pressure against its rivals following the BoE event and GBP/USD lost about 0.9% on a daily basis. The pair corrects higher on Wednesday and trades above 1.3550.
Gold came under heavy selling pressure on Thursday and lost more than 3.5%. After falling to the $4,650 region in the Asian session on Friday, XAU/USD gathered recovery momentum and was last seen rising about 1.5% on the day near $4,860. Silver lost about 20% on Thursday and touched its lowest level since mid-December near $64 early Friday. XAG/USD gains traction to start the European session and trades in positive territory near $73.
The Unemployment Rate in Canada is expected to remain unchanged at 6.8% in January. In this period, Net Change in Employment is seen rising by 7K. USD/CAD trades marginally lower on the day below 1.3700 after rising more than 0.3% on Thursday.
USD/JPY closed the fifth consecutive trading day in positive territory on Thursday. The pair stays in a consolidation phase and fluctuates in a tight channel above 156.50 in the European morning on Friday. Investors could refrain from taking large positions in the pair ahead of this weekend's general election in Japan.
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.
Nothing in this material constitutes investment advice, personal recommendation, investment research, an offer, or a solicitation to buy or sell any financial instrument. The content has been prepared without consideration of your individual investment objectives, financial situation, or needs, and should not be treated as such.
Past performance is not a reliable indicator of future performance and/or results. Forward-looking scenarios or forecasts are not a guarantee of future performance. Actual results may differ materially from those anticipated.
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