Forex Today: Focus shifts to US data and Fed following BoJ's unexpected hike
|Here is what you need to know on Wednesday, July 31:
After a volatile Asian session that featured inflation data from Australia and the Bank of Japan's (BoJ) policy decisions, investors gear up for further action on the last trading day of July. Harmonized Index of Consumer Prices (HICP) data for July stands out in the European economic docket. Later in the day, ADP Employment Change data from the US will be watched closely by market participants before the Federal Reserve's (Fed) monetary policy announcements.
The BoJ unexpectedly raised its policy rate by 15 basis points (bps) to the range of 0.15%-0.25% from 0%-0.1%. Additionally, the Japanese central bank decided to taper Japanese government bond (JGB) buying to JPY3 trillion per month as of the first quarter of 2026. In the post meeting press conference, BoJ Governor Kazuo Ueda said that they will keep raising rates and adjust the degree of monetary easing if current economic, price outlook is realized. USD/JPY rose sharply toward 154.00 following a dip to the 151.50 area with the immediate reaction to the BoJ's rate hike but failed to gather further bullish momentum. At the time of press, the pair was trading slightly above 152.50.
Japanese Yen PRICE This week
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.38% | 0.30% | -0.97% | 0.05% | 0.68% | -0.48% | -0.11% | |
| EUR | -0.38% | -0.12% | -1.37% | -0.30% | 0.34% | -0.88% | -0.47% | |
| GBP | -0.30% | 0.12% | -1.31% | -0.20% | 0.47% | -0.74% | -0.35% | |
| JPY | 0.97% | 1.37% | 1.31% | 1.02% | 1.70% | 0.51% | 0.95% | |
| CAD | -0.05% | 0.30% | 0.20% | -1.02% | 0.66% | -0.57% | -0.15% | |
| AUD | -0.68% | -0.34% | -0.47% | -1.70% | -0.66% | -1.19% | -0.82% | |
| NZD | 0.48% | 0.88% | 0.74% | -0.51% | 0.57% | 1.19% | 0.39% | |
| CHF | 0.11% | 0.47% | 0.35% | -0.95% | 0.15% | 0.82% | -0.39% |
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 Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
During the Asian trading hours, the data from Australia showed that the Consumer Price Index (CPI) rose 1% on a quarterly basis in the second quarter. On a yearly basis, the CPI increased 3.8% as forecast. The Reserve Bank of Australia's mean CPI rose 3.9% in the second quarter (YoY) following the 4% increase recorded in the first quarter. Finally, Retail Sales in Australia rose 0.5% in June, surpassing the market expectation of 0.2%. AUD/USD came under bearish pressure and was last seen trading at its lowest level since early May near 0.6500, losing 0.5% on a daily basis.
Meanwhile, NBS Manufacturing PMI in China arrived at 49.4 in July and NBS-Non Manufacturing PMI edged slightly lower to 50.2 from 50.5 in June.
The Fed is widely expected to leave its policy setting unchanged following the July policy meeting. Investors will scrutinize changes in the policy statement and Fed Chairman Jerome Powell's comments in the post-meeting press conference to see whether the US central bank intends to lower the policy rate several times before the end of the year. The US Dollar (USD) Index moves up and down in a tight range below 104.50 and the benchmark 10-year US Treasury bond yield holds steady at around 4.15%. In the meantime, US stock index futures trade in positive territory, with S&P 500 Futures and Nasdaq Futures gaining 0.75% and 1.35%, respectively.
EUR/USD registered losses for the second consecutive day on Tuesday but managed to hold above 1.0800. The pair trades in a tight channel near 1.0820 in the European morning on Wednesday.
GBP/USD struggled to gather recovery momentum after moving sideways near 1.2850 in the European session on Tuesday and closed the day in negative territory. The pair stays in a consolidation phase at around 1.2830 early Wednesday.
Following a quiet European session, Gold turned bullish in the American session on Tuesday and closed above $2,400, gaining over 1% on a daily basis. XAU/USD continues to stretch higher on Wednesday toward $2,420.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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