Forex Today: US Dollar slides, Gold at record-high as big central bank week gets underway
|Here is what you need to know on Monday, September 16:
The US Dollar (USD) struggles to stay resilient against its major rivals at the beginning of the week, which will feature monetary policy announcements from major central banks and key macroeconomic data releases. The European Central Bank (ECB) will release a revision to second-quarter Labor Cost data and Eurostat will publish Trade Balance figures for July on Monday. Later in the day, NY Empire State Manufacturing Index data for September will be featured in the US economic docket.
Growing expectations for a large Federal Reserve (Fed) rate cut at this week's policy meeting caused the USD to come under selling pressure in the second half of the previous week. The USD Index stays on the back foot in the European morning and was last seen losing 0.3% on the day below 101.00. In the meantime, US stock index futures trade marginally lower on the day and the benchmark 10-year US Treasury bond yield holds slightly above 3.6%.
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 weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.23% | -0.27% | -1.76% | 0.10% | -0.82% | -0.07% | 0.05% | |
| EUR | 0.23% | -0.09% | -1.48% | 0.38% | -0.64% | 0.18% | 0.26% | |
| GBP | 0.27% | 0.09% | -1.51% | 0.43% | -0.55% | 0.25% | 0.35% | |
| JPY | 1.76% | 1.48% | 1.51% | 1.91% | 0.99% | 1.72% | 2.05% | |
| CAD | -0.10% | -0.38% | -0.43% | -1.91% | -0.88% | -0.19% | 0.11% | |
| AUD | 0.82% | 0.64% | 0.55% | -0.99% | 0.88% | 0.80% | 0.88% | |
| NZD | 0.07% | -0.18% | -0.25% | -1.72% | 0.19% | -0.80% | 0.11% | |
| CHF | -0.05% | -0.26% | -0.35% | -2.05% | -0.11% | -0.88% | -0.11% |
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 closed the previous week virtually unchanged. The pair trades modestly higher on the day, a few pips above 1.1100 in the European morning on Monday.
GBP/USD failed to build on Thursday's gains and ended the last day of the previous week flat. The pair gains traction in the early European session and trades above 1.3150.
Gold continues to stretch higher after registering impressive gains on Thursday and Friday. XAU/USD was last seen trading at a fresh record-high at around $2,590.
USD/JPY stays under bearish pressure to begin the week and trades at its weakest level since July 2023 below 140. The Bank of Japan will announce monetary policy decisions in the Asian session on Friday.
After posting small losses on Friday, AUD/USD benefited from the broad-based selling pressure surrounding the US Dollar and climbed above 0.6700. August employment data from Australia will be published early Thursday.
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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