Forex Today: US Dollar extends Fed-inspired recovery
Here is what you need to know on Friday, March 21:
The US Dollar (USD) gathered bullish momentum and outperformed its rivals on Thursday. The USD Index, which tracks the USD's valuation against a basket of six major currencies, continues to edge higher early Friday and stays in positive territory on the weekly chart. The economic calendar will not feature any high-impact data releases on Friday, and investors will pay close attention to comments from Federal Reserve officials and US President Donald Trump.
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.42% | 0.00% | 0.42% | -0.44% | 0.57% | -0.22% | -0.15% | |
| EUR | -0.42% | -0.53% | -0.40% | -0.84% | 0.01% | -0.65% | -0.57% | |
| GBP | 0.00% | 0.53% | 0.44% | -0.53% | 0.51% | -0.13% | -0.13% | |
| JPY | -0.42% | 0.40% | -0.44% | -0.84% | -0.06% | -0.58% | -0.68% | |
| CAD | 0.44% | 0.84% | 0.53% | 0.84% | 0.80% | 0.21% | -0.28% | |
| AUD | -0.57% | -0.01% | -0.51% | 0.06% | -0.80% | -0.64% | -0.59% | |
| NZD | 0.22% | 0.65% | 0.13% | 0.58% | -0.21% | 0.64% | 0.06% | |
| CHF | 0.15% | 0.57% | 0.13% | 0.68% | 0.28% | 0.59% | -0.06% |
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 benefitted from the cautious market mood and upbeat data releases on Thursday. Following Wednesday's rebound, major equity indexes in the US ended the day in the red. The US Department of Labor reported that there were 223,000 Initial Jobless Claims in the week ending March 15, slightly below the market expectation of 224,000. Other data from the US showed that Existing Home Sales increased by 4.2% in February, following January's 4.7% decline. Additionally, Philadelphia Fed Manufacturing Index came in at 12.5 in March, surpassing analysts' estimate of 8.5. In the European morning, US stock index futures trade flat on the day and the USD Index consolidates its gains near 104.00.
US President Trump, once again, called upon the Fed to "do the right thing and lower interest rates" in a social media post early Friday.
EUR/USD lost about 0.5% and closed the second consecutive day in negative territory on Thursday. The pair struggles to stage a rebound in the European morning and trades below 1.0850. Later in the day, the European Commission will publish the preliminary Consumer Confidence data for March.
The Bank of England (BoE) announced on Thursday that it left the policy rate unchanged at 4.5%, as widely anticipated. Only one policymaker voted in favor of a 25 basis points (bps) rate cut, against the market expectation of two policymakers. GBP/USD failed to gain traction following the BoE event and ended the day marginally lower. The pair stays on the back foot early Friday and trades below 1.2950.
The data from Japan showed that the National Consumer Price Index rose by 3.7% on a yearly basis in February, after rising by 4% in January. The core CPI rose by 3% in the same period, coming in above the market forecast of 2.9%. After closing the day virtually unchanged on Thursday, USD/JPY turned north in the Asian session on Friday and was last seen rising about 0.4% on the day above 149.30.
Gold made a downward correction after reaching a new record high above $3,050 and posted small losses on Thursday. XAU/USD continues to stretch lower on Friday and trades near $3,030.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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.
