Forex Today: Critical central bank week starts in a quiet manner
|Here is what you need to know on Monday, July 29:
Major currency pairs fluctuate near the previous week's closing levels early Monday as market participants stay on the sidelines ahead of this week's critical data releases and central bank meetings. Dallas Fed Manufacturing Business Index will be the only data featured in the US economic docket.
The US Dollar (USD) Index continues to move sideways below 104.50 in the European morning after ending the week virtually unchanged. Meanwhile, US stock index futures trade in positive territory, while the benchmark 10-year US Treasury bond yield stays below 4.2%. The Federal Reserve (Fed) will announce monetary policy decisions on Wednesday following the July 30-31 meeting. Throughout the week, employment-related data releases from the US will also be watched closely by investors.
US Dollar PRICE Last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.22% | 0.36% | -2.55% | 0.77% | 1.97% | 2.13% | -0.50% | |
| EUR | -0.22% | 0.14% | -2.85% | 0.49% | 1.78% | 1.87% | -0.78% | |
| GBP | -0.36% | -0.14% | -3.08% | 0.35% | 1.65% | 1.69% | -0.94% | |
| JPY | 2.55% | 2.85% | 3.08% | 3.48% | 4.75% | 4.81% | 2.08% | |
| CAD | -0.77% | -0.49% | -0.35% | -3.48% | 1.28% | 1.35% | -1.28% | |
| AUD | -1.97% | -1.78% | -1.65% | -4.75% | -1.28% | 0.06% | -2.54% | |
| NZD | -2.13% | -1.87% | -1.69% | -4.81% | -1.35% | -0.06% | -2.55% | |
| CHF | 0.50% | 0.78% | 0.94% | -2.08% | 1.28% | 2.54% | 2.55% |
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 registered small gains on Thursday and Friday but registered weekly losses. The pair holds steady at around 1.0850 at the beginning of the European session. On Tuesday, second-quarter Gross Domestic Product (GDP) data from Germany and the Eurozone, alongside German inflation data for July, will be featured in the European economic docket.
GBP/USD lost nearly 0.4% last week and closed the second consecutive week in negative territory. The pair stays in a consolidation phase above 1.2850 on Monday. On Thursday, the Bank of England (BoE) will announce its interest rate decisions.
Gold gained traction on Friday and erased a portion of its weekly losses. Although XAU/USD started the week on a bullish noted and climbed above $2,400 during the Asian trading hours, it retreated below this level by the European morning. At the time of press, Gold was trading marginally higher on the day at around $2,390.
The Bank of Japan (BoJ) will release its monetary policy decision in the Asian session on Wednesday. USD/JPY lost over 2% last week and edged lower early Monday. As of writing, the pair was trading slightly below 153.50.
The Australian Bureau of Statistics will publish the quarterly Consumer Price Index (CPI) data for the second quarter on Wednesday. AUD/USD posted losses for nine consecutive trading days and touched its lowest level since early May near 0.6500 before staging a modest rebound on Friday. The pair trades in a narrow channel at around 0.6550 in the European morning on Monday.
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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