Forex Today: BoJ maintains status quo, BoE up next
|Here is what you need to know on Thursday, December 19:
Following the Federal Reserve's (Fed) and the Bank of Japan's (BoJ) monetary policy announcements, the Bank of England (BoE) is next in line to release its interest rate decision on Thursday. In the second half of the day, the US economic calendar will feature weekly Initial Jobless Claims and November Existing Home Sales data. Additionally, the US Bureau of Economic Analysis will publish the final revision to the third quarter Gross Domestic Product (GDP) growth.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.01% | 0.13% | 1.81% | 1.37% | 1.99% | 2.22% | 0.63% | |
| EUR | -1.01% | -0.81% | 0.91% | 0.44% | 1.14% | 1.28% | -0.31% | |
| GBP | -0.13% | 0.81% | 1.60% | 1.25% | 1.97% | 2.08% | 0.51% | |
| JPY | -1.81% | -0.91% | -1.60% | -0.45% | 0.17% | 0.41% | -1.08% | |
| CAD | -1.37% | -0.44% | -1.25% | 0.45% | 0.66% | 0.83% | -0.74% | |
| AUD | -1.99% | -1.14% | -1.97% | -0.17% | -0.66% | 0.14% | -1.43% | |
| NZD | -2.22% | -1.28% | -2.08% | -0.41% | -0.83% | -0.14% | -1.57% | |
| CHF | -0.63% | 0.31% | -0.51% | 1.08% | 0.74% | 1.43% | 1.57% |
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 cut its policy rate by 25 basis points (bps) to the range of 4.25%-4.5% after the last meeting of the year. The Fed made small changes to its policy statement from the November meeting, reiterating that they will assess incoming data, evolving outlook and balance of risks when considering the extent and timing of additional rate adjustments. Meanwhile, the revised Summary of Economic Projections (SEP) showed that Fed projections imply 50 bps of rate cuts in 2025. In the post-meeting press conference, Fed Chairman Jerome Powell explained that stronger economic growth and lower unemployment point to a slower rate-cut path, adding that they can be cautious going forward. The US Dollar (USD) Index gathered bullish momentum and reached its highest level since November 2022 above 108.00 in the late American session before going into a consolidation phase early Thursday.
The BoJ decided to keep the short-term rate target unchanged in the range of 0.15%-0.25% after concluding its two-day monetary policy review meeting. The decision came in line with the market expectations. However, hawkish board member Naoki Tamura dissented and proposed raising interest rates to 0.5% on the view inflationary risks were building. In the meantime, BoJ Governor Kazuo Ueda said that they will keep adjusting the degree of easing if the economic and the price outlook is to be realized. After posting strong gains on Thursday, USD/JPY continues to push higher and was last seen trading at its highest level in over a month above 156.00.
The BoE is forecast to leave the policy rate unchanged at 4.75%. Since there will not be a press conference, the statement language and the voting split could drive Pound Sterling's valuation. After losing more than 1% on Wednesday, GBP/USD stages a modest rebound and trades at around 1.2600 early Thursday.
EUR/USD came under heavy bearish pressure in the American session on Wednesday and dropped below 1.0350. The pair corrects higher early Thursday and trades near 1.0400.
Gold declined sharply and lost more than 2% on a daily basis on Thursday as the US Treasury bond yields rallied higher on the hawkish dot plot. After dipping below $2,600, Gold gains its traction early Thursday and trades above $2,600, rising more than 1% on the day.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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