Here is what you need to know on Thursday, November 7:
The US Dollar (USD) outperformed its major rivals on Wednesday as markets reacted to Donald Trump winning the US presidential election. Early Thursday, the USD Index corrects lower and fluctuates below 105.00 as investors gear up for the Federal Reserve's (Fed) monetary policy decisions. Additionally, the Bank of England (BoE) will release its Monetary Policy Report and announce the interest rate.
The USD Index registered its largest one-day gain of the year, rising over 1.5% on the day on Wednesday. The benchmark 10-year US Treasury bond yield surged higher and gained nearly 4%. Additionally, Wall Street's main indexes rallied after the opening bell, with the S&P 500 Index ending the day 2.5% higher. The Fed is widely forecast to lower the policy rate by 25 basis points to the range of 4.5%-4.75%. Fed Chairman Jerome Powell will speak on the policy outlook and respond to questions in a press conference starting at 19:30 GMT. Ahead of the Fed decision, the US economic calendar will feature the weekly Initial Jobless Claims and Unit Labor Costs data for the third quarter.
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 | 0.79% | -0.11% | 1.25% | -0.26% | -0.97% | -0.07% | 0.87% | |
| EUR | -0.79% | -0.93% | 0.02% | -1.44% | -1.44% | -1.25% | -0.32% | |
| GBP | 0.11% | 0.93% | 0.70% | -0.52% | -0.52% | -0.32% | 0.62% | |
| JPY | -1.25% | -0.02% | -0.70% | -1.50% | -1.65% | -1.10% | -0.07% | |
| CAD | 0.26% | 1.44% | 0.52% | 1.50% | -0.49% | 0.18% | 1.14% | |
| AUD | 0.97% | 1.44% | 0.52% | 1.65% | 0.49% | 0.20% | 1.15% | |
| NZD | 0.07% | 1.25% | 0.32% | 1.10% | -0.18% | -0.20% | 0.94% | |
| CHF | -0.87% | 0.32% | -0.62% | 0.07% | -1.14% | -1.15% | -0.94% |
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).
GBP/USD lost more than 1% on Wednesday and registered its lowest daily close since mid-August. The pair rebounds in the European morning on Thursday and trades comfortably above 1.2900. The BoE is forecast to cut the bank rate by 25 bps to 4.75%. BoE Governor Andrew Bailey will deliver the policy statement at 12:30 GMT.
EUR/USD fell nearly 2% on Wednesday and touched its weakest level in over four months below 1.0700. The pair holds its ground early Thursday and trades near 1.0750. Eurostat will release Retail Sales data for September.
During the Asian trading hours, the data from China showed that Exports rose by 12.7% on a yearly basis in October, while Imports declined by 2.3% in the same period. As a result, China's trade surplus widened to $95.27 billion from $81.71 billion in September. After losing 1% on Wednesday, AUD/USD gained traction early Thursday and erased a large portion of its losses. At the time of press, the pair was up nearly 0.8% on the day above 0.6600.
USD/JPY gathered bullish momentum and climbed to its highest level since late July above 154.40. The pair corrects lower on Thursday and trades near 154.00.
Pressured by surging US yields and the broad-based USD strength, Gold suffered large losses on Wednesday, closing the day with a 3% loss. XAU/USD struggles to stage a rebound on Thursday and trades marginally lower on the day below $2,660.
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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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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