Here is what you need to know on Tuesday, October 1:
Following Monday's choppy action in financial markets, investors shift their attention to key macroeconomic data releases as the fourth quarter gets underway. Eurostat will publish Harmonized Index of Consumer Prices (HICP), the European Central Bank's (ECB) preferred gauge of inflation, on Tuesday. Later in the day, the ISM Manufacturing PMI for September and JOLTS Job Openings data for August will be featured in the US economic docket. Several Federal Reserve (Fed) policymakers are scheduled to deliver speeches as well.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.28% | -0.06% | 1.52% | 0.06% | -0.34% | 0.08% | 0.67% | |
| EUR | -0.28% | -0.33% | 1.24% | -0.19% | -0.56% | -0.17% | 0.47% | |
| GBP | 0.06% | 0.33% | 1.72% | 0.14% | -0.23% | 0.16% | 0.80% | |
| JPY | -1.52% | -1.24% | -1.72% | -1.39% | -1.90% | -1.40% | -0.79% | |
| CAD | -0.06% | 0.19% | -0.14% | 1.39% | -0.36% | 0.02% | 0.66% | |
| AUD | 0.34% | 0.56% | 0.23% | 1.90% | 0.36% | 0.39% | 1.03% | |
| NZD | -0.08% | 0.17% | -0.16% | 1.40% | -0.02% | -0.39% | 0.62% | |
| CHF | -0.67% | -0.47% | -0.80% | 0.79% | -0.66% | -1.03% | -0.62% |
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).
While speaking at the National Association for Business Economics Annual Meeting on Monday, Fed Chairman Jerome Powell said that the Fed is not in a hurry to cut rates quickly, adding that their decisions will be guided by data. The US Dollar (USD) Index edged higher during the American trading hours and ended the last day of the third quarter in positive territory. Early Tuesday, the USD Index stays relatively quiet below 101.00. In the meantime, US stock index futures trade marginally lower on the day, pointing to a cautious mood.
After testing 1.1200 during the European trading hours on Monday, EUR/USD turned south in the American session and closed in negative territory. Early Tuesday, the pair fluctuates in a tight channel below 1.1150. Markets expect the annual core HICP inflation to remain unchanged at 2.8% in September in the Eurozone.
GBP/USD edged higher at the beginning of the week but lost its traction to close virtually unchanged on Monday. The pair moves sideways below 1.3400 in the European morning.
In the Summary of Opinions from the September policy meeting, the Bank of Japan's (BoJ) reiterated that they will maintain its current accommodative stance but will adjust policy settings if economic conditions improve. USD/JPY gathers bullish momentum after posting gains on Monday and trades at around 144.50 in the European morning, gaining over 0.5% on the day.
Gold extended its correction following Friday's decline and lost nearly 1% on Monday. XAU/USD holds its ground early Tuesday and trades above $2,640.
During the Asian trading hours, the data from Australia showed that Retail Sales rose 0.7% on a monthly basis in August, surpassing the market expectation for an increase of 0.4%. On a negative note, Building Permits declined by 6.1% in the same period. AUD/USD trades marginally higher on the day above 0.6900 to start the European session.
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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EUR/USD falls below 1.1100 after EU inflation data
EUR/USD remains under heavy bearish pressure and falls below 1.1100 in the European session on Tuesday. The data from the Eurozone showed that the annual HICP inflation softened to 1.8% in September from 2.2%, weighing on the Euro.
GBP/USD extends losses toward 1.3300 ahead of US data
GBP/USD extends losses toward 1.3300 in the European trading hours on Tuesday. Fed Chair Powell's less dovish remarks and a cautious mood keep the US Dollar underpinned ahead of US ISM Manufacturing PMI, JOLTS Job Openings and Fedsepak.
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