Forex Today: Eyes on ECB policy announcements, Fedspeak

Here is what you need to know on Thursday, July 18:

The action in foreign exchange markets remain choppy in the early European session on Thursday as markets participants gear up for key events. The European Central Bank (ECB) will announce monetary policy decisions and ECB President Christine Lagarde will speak on the policy outlook in the post-meeting press conference. The US economic docket will feature Philadelphia Fed Manufacturing Survey and weekly Initial Jobless Claims data. Investors will also pay close attention to comments from Federal Reserve (Fed) officials.

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 weakest against the Japanese Yen.

 
USD
EUR
GBP
JPY
CAD
AUD
NZD
CHF

USD
 
-0.20%
-0.08%
-1.30%
0.22%
0.68%
0.61%
-1.24%

EUR
0.20%
 
0.15%
-0.92%
0.62%
0.92%
1.01%
-0.84%

GBP
0.08%
-0.15%
 
-0.97%
0.46%
0.76%
0.81%
-0.99%

JPY
1.30%
0.92%
0.97%
 
1.52%
1.76%
1.88%
-0.14%

CAD
-0.22%
-0.62%
-0.46%
-1.52%
 
0.39%
0.39%
-1.46%

AUD
-0.68%
-0.92%
-0.76%
-1.76%
-0.39%
 
0.09%
-1.74%

NZD
-0.61%
-1.01%
-0.81%
-1.88%
-0.39%
-0.09%
 
-1.85%

CHF
1.24%
0.84%
0.99%
0.14%
1.46%
1.74%
1.85%
 

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 US Dollar (USD) came under renewed selling pressure midweek following dovish comments from Fed policymakers. The USD Index lost nearly 0.5% and registered its lowest daily close since late March on Wednesday. Early Thursday, the index holds its ground and fluctuates in a narrow channel above 103.50. The benchmark 10-year US Treasury bond yield stays below 4.2% and US stock index futures trade modestly higher on the day.

During the Asian trading hours, the data from Australia showed that the Unemployment Rate ticked up to 4.1% in June from 4% in May. The Employment Change came in at +50.2K in the same period, with Full-Time Employment rising 43.3K. AUD/USD edged slightly higher following the labor market data and was last seen trading in positive territory near 0.6740.

The UK’s Office for National Statistics reported early Thursday that the ILO Unemployment Rate held steady at 4.4% in the three months to May. In the same period, annual wage inflation, as measured by the change in Average Earnings Including Bonus, declined to 5.7% from 6%. After touching a fresh 2024-high of 1.3045 on Wednesday, GBP/USD stays in a consolidation phase and fluctuates at around 1.3000 in the European morning.

USD/JPY fell more than 1% on Wednesday and continued to push lower in the Asian session on Thursday. After touching its weakest level since early June at 155.35, the pair staged a rebound and was last seen trading flat on the day above 156.00. Kazushige Kamiyama, a senior Bank of Japan (BoJ) official and the central bank’s Osaka branch manager, said on Thursday that the BoJ wants to maintain an accommodative monetary environment as much as possible, per Jiji News Agency. Early Friday, National Consumer Price Index data from Japan will be looked upon for fresh impetus.

EUR/USD extended its weekly rally and reached its highest level since mid-March near 1.0950 on Wednesday. The pair stages a downward correction on Thursday and trades modestly lower on the day at around 1.0930. The ECB is widely expected to leave monetary policy settings unchanged following the July meeting.

Gold turned south and closed the day in negative territory on Wednesday after setting a new all-time-high above $2,380. XAU/USD regained its traction early Thursday and climbed above $2,470.

ECB FAQs

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.

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