Forex Today: US Dollar extends recovery ahead of key Fedspeak
Here is what you need to know on Friday, March 22:
The US Dollar staged an impressive comeback following the selloff seen late Wednesday. The US Dollar (USD) Index gained more than 0.5% on Thursday and retraced the post-Fed decline. Early Friday, the USD Index continues to push higher and was last seen trading at its highest level in three weeks above 104.00. Later in the day, Federal Reserve Chairman Jerome Powell will deliver opening remarks at the Fed Listens event. Several other Fed policymakers are scheduled to deliver speeches ahead of the weekend as well.
The USD started to outperform its rivals in the American session on Thursday, boosted by the upbeat macroeconomic data releases. The PMI surveys showed that the economic activity in the private sector continued to expand at a healthy pace in early March, while input price pressures continued to strengthen. Additionally, the Initial Jobless Claims edged lower to 210K in the week ending March 16.
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 Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF |
| USD | 0.53% | 1.00% | 0.15% | 0.64% | 1.62% | 1.28% | 1.75% |
| EUR | -0.54% | 0.46% | -0.39% | 0.11% | 1.10% | 0.77% | 1.21% |
| GBP | -1.01% | -0.47% | -0.86% | -0.36% | 0.62% | 0.29% | 0.75% |
| CAD | -0.14% | 0.39% | 0.85% | 0.50% | 1.47% | 1.15% | 1.60% |
| AUD | -0.62% | -0.09% | 0.35% | -0.51% | 1.00% | 0.67% | 1.13% |
| JPY | -1.63% | -1.13% | -0.56% | -1.52% | -1.02% | -0.34% | 0.13% |
| NZD | -1.31% | -0.77% | -0.30% | -1.16% | -0.66% | 0.33% | 0.45% |
| CHF | -1.76% | -1.23% | -0.77% | -1.63% | -1.13% | -0.14% | -0.47% |
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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
The Bank of England (BoE) maintained the bank rate at 5.25% as expected following the March policy meeting. The BoE refrained from offering any hints at the timing of the policy pivot in the statement. Furthermore, none of the policymakers voted in favor of a rate hike, while one policymakers voted for a rate cut. BoE Governor Andrew Bailey said on Friday that markets can anticipate more than one interest rate cut this year and added that he is increasingly confident inflation is heading towards the target. GBP/USD stays under heavy bearish pressure and was last seen trading at its lowest level in a month near 1.2600.
The Swiss National Bank (SNB) announced on Thursday that it lowered the policy rate by 25 basis points to 1.5%. Markets were expecting the SNB to hold the interest rate unchanged. The initial reaction triggered a selloff in the Swiss Franc and USD/CHF gained more than 1% to reach its highest level since November above 0.9000.
EUR/USD extended its slide after breaking below 1.0900 on Thursday and declined nearly 0.6% on a daily basis. The pair continues to stretch lower early Friday and trades below 1.0850.
USD/JPY closed the eighth consecutive day in positive territory on Thursday before staging a technical correction toward the 151.50 area on Friday. Bank of Japan Governor Kazuo Ueda reiterated on Friday that the central bank’s Japanese government bond (JGB) holdings will remain at current levels for the time being.
Japanese Yen sticks to modest intraday gains against USD, upside potential seems limited.
Gold made a sharp U-turn after setting a new record high above $2,220 early Thursday and closed the day in negative territory. XAU/USD stays on the back foot in the European morning and was last seen losing more than 0.5% below $2,170.
Gold price extends its steady intraday descent amid broad-based USD strength.
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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