Here is what you need to know on Thursday, October 10:
After having stayed relatively quiet since the beginning of the week, the US Dollar (USD) gathered bullish momentum in the American trading hours on Wednesday, with the USD Index climbing to its highest level since mid-August near 103.00. The European Central Bank (ECB) will release the Monetary Policy Meeting Accounts later in the European session. In the second half of the day, the Consumer Price Index (CPI) data from the US will be watched closely by market participants.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.28% | 0.29% | 0.30% | 1.05% | 0.93% | 1.21% | 0.12% | |
| EUR | -0.28% | 0.07% | 0.05% | 0.79% | 0.62% | 0.92% | -0.19% | |
| GBP | -0.29% | -0.07% | -0.06% | 0.73% | 0.55% | 0.88% | -0.14% | |
| JPY | -0.30% | -0.05% | 0.06% | 0.73% | 0.61% | 0.85% | -0.14% | |
| CAD | -1.05% | -0.79% | -0.73% | -0.73% | -0.08% | 0.17% | -0.92% | |
| AUD | -0.93% | -0.62% | -0.55% | -0.61% | 0.08% | 0.34% | -0.77% | |
| NZD | -1.21% | -0.92% | -0.88% | -0.85% | -0.17% | -0.34% | -1.05% | |
| CHF | -0.12% | 0.19% | 0.14% | 0.14% | 0.92% | 0.77% | 1.05% |
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).
The hawkish tone in the minutes of the Federal Reserve's (Fed) September meeting boosted the USD late Wednesday. The publication showed that even though a substantial majority of Fed officials supported the 50 basis points (bps) rate cut, there was even a broader consensus that this initial step would not lock the Fed into any specific pace for future rate cuts. Additionally, some participants favored only a 25 bps reduction in the policy rate cut and a few others mentioned they could have supported that decision as well.
Annual CPI inflation in the US is forecast to soften to 2.3% in September from 2.5% in August. The core CPI, which excludes volatile food and energy prices, is expected to rise 0.2% on a monthly basis. Ahead of the key CPI data, the USD Index stays in a consolidation phase, while US stock index futures trade marginally lower.
Earlier in the day, the data from Germany showed that Retail Sales rose 1.6% in August. This reading failed to trigger a noticeable reaction in EUR/USD. After losing nearly 0.4% on Wednesday, the pair trades in a tight range below 1.0950 early Thursday.
GBP/USD edged lower in the second half of the day on Wednesday and came within a touching distance of 1.3050. The pair holds its ground in the European morning on Thursday but remains below 1.3100.
Following Tuesday's indecisive action, USD/JPY gained traction and registered gains on Wednesday. The pair touched its highest level since early August above 149.50 during the Asian trading hours on Thursday before retreating toward 149.00.
Gold extended its slide and closed the sixth consecutive trading day in negative territory on Wednesday. XAU/USD struggles to gather bullish momentum but manages to hold above $2,600 in the European morning on Thursday.
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 treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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