Forex Today: US Dollar consolidates gains ahead of key inflation data
Here is what you need to know on Tuesday, May 13:
The US Dollar (USD) retreats slightly in the European morning on Tuesday after posting impressive gains against its rivals to start the week. The European economic calendar will feature ZEW Survey - Economic Sentiment data for Germany and the Eurozone. In the second half of the day, April Consumer Price Index (CPI) data from the US will be watched closely.
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 Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.19% | 0.76% | 1.09% | 0.55% | 0.00% | 0.50% | 0.88% | |
| EUR | -1.19% | -0.30% | 0.44% | -0.15% | -0.56% | -0.21% | 0.16% | |
| GBP | -0.76% | 0.30% | 0.92% | 0.16% | -0.24% | 0.02% | 0.47% | |
| JPY | -1.09% | -0.44% | -0.92% | -0.54% | -1.69% | -1.44% | -0.45% | |
| CAD | -0.55% | 0.15% | -0.16% | 0.54% | -0.28% | -0.06% | 0.31% | |
| AUD | -0.01% | 0.56% | 0.24% | 1.69% | 0.28% | 0.25% | 0.69% | |
| NZD | -0.50% | 0.21% | -0.02% | 1.44% | 0.06% | -0.25% | 0.34% | |
| CHF | -0.88% | -0.16% | -0.47% | 0.45% | -0.31% | -0.69% | -0.34% |
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 USD Index gathered bullish momentum and climbed to its highest level in a month near 102.00 on Monday as markets cheered the news of the US and China reaching a deal to pause reciprocal tariff rates for 90 days and to significantly lower them. Wall Street's main indexes shot higher after the opening bell and Nasdaq Composite rose 4% on the day. In the European morning on Tuesday, the USD Index stays in a consolidation phase at around 101.50, while US stock index futures lose between 0.2% and 0.35%.
The improving risk mood made it difficult for Gold to find demand on Monday. XAU/USD remained under heavy bearish pressure throughout the day and fell more than 2.5%. Early Tuesday, the pair stages a rebound and trades above $3,250.
EUR/USD turned south in the European session on Monday and ended up losing more than 1% on a daily basis. The pair recovers slightly in the European morning and trades slightly above 1.1100.
USD/JPY gained more than 2% on Monday and advanced to its strongest level since early April above 148.60. The pair corrects lower and trades below 148.00 to begin the European session. Bank of Japan (BoJ) Deputy Governor Shinichi Uchida said on Tuesday that there are both upside and downside risks from US tariffs on Japan’s prices.
GBP/USD holds steady at around 1.3200 to start the European session on Tuesday. The UK's Office for National Statistics reported earlier in the day that the ILO Unemployment Rate edged higher to 4.5% in the three months to March from 4.4% in February, as expected. Other details of the report showed that the Claimant Count Rate remained unchanged at 4.5% in this period, while the wage inflation, as measured by the changed in the Average Earnings Excluding Bonus, declined to 5.6% from 5.9%.
After losing more than 0.6% on Monday, AUD/USD gains traction on Tuesday and trades in positive territory above 0.6400. The data from Australia showed earlier in the day that the Westpac Consumer Confidence improved to 2.2% in May from -6% in April.
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.
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
