Forex Today: Gold hits new record high, Pound Sterling holds steady after UK inflation
|Here is what you need to know on Wednesday, July 17:
While the trading action in major currency pairs remained subdued, Gold climbed toward $2,500 and reached a new all-time high early Wednesday. Eurostat will release revisions to June inflation data and the US economic calendar will feature Housing Starts, Building Permits and Industrial Production data for June. Market participants will continue to pay close attention to comments from central bank officials.
The UK's Office for National Statistics reported in the European morning that annual inflation, as measured by the change in the Consumer Price Index (CPI), held steady at 2% in June. The core CPI rose 3.5% in the same period, while the Retail Price Index increased 2.9%. All these figures came in line with analysts' estimates. GBP/USD edged slightly higher but remained below 1.3000 with the immediate reaction.
Following Monday's modest rebound, the US Dollar (USD) Index closed flat on Tuesday after meeting resistance near 104.50. The USD Index inches lower early Wednesday but manages to hold above 104.00. In the meantime, the benchmark 10-year US Treasury bond yield stays below 4.2% following Tuesday's sharp decline and US stock index futures trade in negative territory.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.03% | -0.02% | -0.35% | 0.28% | 0.73% | 0.59% | -0.16% | |
| EUR | -0.03% | -0.01% | -0.19% | 0.45% | 0.74% | 0.75% | 0.00% | |
| GBP | 0.02% | 0.00% | -0.08% | 0.45% | 0.75% | 0.71% | 0.01% | |
| JPY | 0.35% | 0.19% | 0.08% | 0.63% | 0.86% | 0.90% | -0.00% | |
| CAD | -0.28% | -0.45% | -0.45% | -0.63% | 0.38% | 0.30% | -0.44% | |
| AUD | -0.73% | -0.74% | -0.75% | -0.86% | -0.38% | 0.00% | -0.73% | |
| NZD | -0.59% | -0.75% | -0.71% | -0.90% | -0.30% | -0.01% | -0.75% | |
| CHF | 0.16% | -0.00% | -0.01% | 0.00% | 0.44% | 0.73% | 0.75% |
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).
Gold benefited from falling US T-bond yields on Tuesday and closed near $2,470. XAU/USD preserved its bullish momentum in the Asian session on Wednesday and reached a new all-time high above $2,480 before retreating below $2,470 by the European morning.
USD/CAD advanced to a two-week-high above 1.3700 in the early American session on Tuesday after the data from Canada showed that the annual CPI inflation softened to 2.7% in June from 2.9% in May. The pair, however, failed to gather further bullish momentum and closed the day modestly lower below 1.3700. In the European morning on Wednesday, USD/CAD fluctuates at around 1.3680.
The CPI in New Zealand rose 3.3% on a yearly basis in the second quarter. This reading followed the 4% increase recorded in the first quarter and came in below the market expectation of 3.5%. Despite the soft inflation data, NZD/USD trades in positive territory above 0.6050.
EUR/USD fluctuated in a narrow channel on Tuesday and closed the day little changed. The pair holds steady at around 1.0900 in the European morning on Wednesday.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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