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Forex Today: Dollar enters consolidation phase ahead of key macroeconomic events

This is what you need to know to trade today Tuesday June 11:

The US Dollar Index fluctuates in a narrow channel above 105.00 in the early part of Tuesday after posting small gains on Monday. The economic calendar will not feature any high-impact data releases. Later in the American session, the US Treasury will hold an auction of 10-year Treasury notes and begin the Federal Reserve’s (Fed) two-day monetary policy meeting.

The risk-averse atmosphere helped US dollar (USD) to stand firm against their rivals at the start of the week. Meanwhile, investors refrain from taking large positions ahead of Wednesday’s Consumer Price Index (CPI) data and the Fed’s monetary policy decisions. The US central bank will also publish Summary Projections Revised Economics.

US Dollar PRICE this week

The following table shows the percentage change of the US Dollar (USD) against the major currencies listed this week. The US Dollar was the strongest currency against the Euro.

USD EUR GBP JPY CAD AUD NZD CHF
USD 0.31% 0.00% 0.28% 0.02% -0.39% -0.36% -0.11%
EUR -0.31% 0.04% 0.22% -0.04% -0.43% -0.42% -0.17%
GBP -0.00% -0.04% 0.32% -0.07% -0.46% -0.45% -0.21%
JPY -0.28% -0.22% -0.32% -0.26% -0.75% -0.75% -0.34%
CAD -0.02% 0.04% 0.07% 0.26% -0.38% -0.38% -0.14%
AUD 0.39% 0.43% 0.46% 0.75% 0.38% 0.01% 0.26%
NZD 0.36% 0.42% 0.45% 0.75% 0.38% -0.01% 0.25%
CHF 0.11% 0.17% 0.21% 0.34% 0.14% -0.26% -0.25%

The heat map shows the percentage changes of the major currencies against each other. The base currency is chosen from the left column, while the quote currency is chosen from the top row. For example, if you choose the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change shown in the box will represent USD (base)/JPY (quote).

During Asian trading hours, data from Australia showed the National Australia Bank Business Confidence Index fell to -3 in May from 2 in April. He AUD/USD largely ignored this data and was last seen moving sideways in a narrow channel slightly above 0.6600.

The UK’s Office for National Statistics reported on Tuesday that the ILO unemployment rate rose to 4.4% in the three months to April, with the change in employment at -140,000 in the same period. Additionally, annual wage inflation, measured by the change in Average Earnings Including Bonuses, remained stable at 5.9%. He GBP/USD lost traction following UK labor market data and erased its daily gains. However, the pair managed to stabilize above 1.2700.

After a two-day fall, the EUR/USD recovers modestly and trades above 1.0750 in the European morning on Tuesday.

He USD/JPY It closed the first day of the week in positive territory and continued to rise during Asian trading hours on Tuesday. At press time, the pair is trading at its highest level in a week above 157.00.

Gold posted small gains on Monday but struggled to gain bullish momentum. XAU/USD was last seen moving in a tight range around $2,300.

Central banks FAQs

Central banks have a key mandate to ensure price stability in a country or region. Economies constantly face inflation or deflation when the prices of certain goods and services fluctuate. A constant rise in the prices of the same goods means inflation, a constant fall in the prices of the same goods means deflation. It is the central bank’s job to keep demand in line by adjusting its interest rate. For the largest central banks, such as the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

A central bank has an important tool to raise or lower inflation: modify its reference interest rate. At pre-communicated times, the central bank will issue a statement with its reference interest rate and give additional reasons why it maintains or modifies it (cuts or raises it). Local banks will adjust their savings and loan rates accordingly, which in turn will make it harder or easier for citizens to make a profit on their savings or for companies to borrow and invest in their businesses. When the central bank substantially raises interest rates, we speak of monetary tightening. When you reduce your reference rate, it is called monetary easing.

A central bank is usually politically independent. Members of the central bank’s policy council go through a series of panels and hearings before being appointed to a position on the policy council. Each member of that council usually has a certain conviction about how the central bank should control inflation and the subsequent monetary policy. Members who want a very loose monetary policy, with low rates and cheap loans, to substantially boost the economy, while settling for inflation slightly above 2%, are called “doves.” Members who prefer higher rates to reward savings and want to control inflation at all times are called “hawks” and will not rest until inflation is at 2% or just below.

Typically, there is a chair who leads each meeting, has to create a consensus among the hawks or doves, and has the final say when votes need to be divided to avoid a 50-50 tie on whether to adjust current policy. The president will give speeches, which can often be followed live, in which he will communicate the current monetary stance and outlook. A central bank will try to push its monetary policy forward without causing wild swings in rates, stocks, or its currency. All central bank members will channel their stance toward markets ahead of a monetary policy meeting. A few days before a monetary policy meeting is held and until the new policy has been communicated, members are prohibited from speaking publicly. This is what is called the silent period.

Source: Fx Street

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