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Forex Today: Dollar remains under pressure after post-CPI sell-off

Here's what you need to know to trade today Thursday, May 16:

He US dollar (USD) is struggling for a rebound after suffering big losses against its main rivals following April inflation data in the US on Wednesday. Later in the day, weekly jobless claims, April housing starts, industrial production data and the Philadelphia Fed manufacturing survey will stand out on the US economic agenda. Investors will continue Pay attention to the comments of those responsible for the central banks.

The US Bureau of Labor Statistics (BLS) reported on Wednesday that the Consumer Price Index (CPI) rose 3.4% annually in April. The annual core CPI increased 3.6% in the same period and both figures were in line with market expectations. The benchmark 10-year US Treasury yield fell more than 2% as the probability that the Federal Reserve (Fed) will keep the official interest rate unchanged in September fell to 25%, from 35% prior to the publication of inflation data. For its part, the USD index fell 0.7% and hit its lowest level since April 10. Early Thursday, the USD index is flat on the day below 104.50, while the 10-year US bond yield continues to decline towards 4.3%. Meanwhile, US stock index futures are trading slightly higher after Wall Street's main indexes rose about 1% on Wednesday.

US Dollar Prices This Week

The following table shows the percentage change of the United States Dollar (USD) against the main currencies quoted this week. The US dollar was the weakest currency against the New Zealand dollar.

USD -0.98% -1.21% -1.00% -0.38% -1.12% -1.51% -0.56%
EUR 0.98% -0.28% -0.03% 0.58% -0.17% -0.55% 0.39%
GBP 1.21% 0.28% 0.18% 0.86% 0.11% -0.27% 0.67%
JPY 1.00% 0.03% -0.18% 0.61% -0.09% -0.57% 0.47%
CAD 0.38% -0.58% -0.86% -0.61% -0.71% -1.14% -0.28%
AUD 1.12% 0.17% -0.11% 0.09% 0.71% -0.49% 0.55%
NZD 1.51% 0.55% 0.27% 0.57% 1.14% 0.49% 0.95%
FEC 0.56% -0.39% -0.67% -0.47% 0.28% -0.55% -0.95%

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

During Asian trading, data from Australia showed the unemployment rate rose to 4.1% in April, up from 3.9% in March. In this period, full-time employment decreased by 6,100 while part-time employment increased by 44,600. After reaching its highest level since January above 0.6700, the pair AUD/USD turned lower and fell towards 0.6670 after the labor market data.

Japan's Gross Domestic Product (GDP) contracted at an annual rate of 2% in the first quarter, a preliminary estimate from the Japanese Cabinet Office showed early on Thursday. This figure was lower than market expectations, which expected a contraction of 1.5%. After falling almost 1% on Wednesday, he USD/JPY ignored the GDP data and extended its decline. At the time of writing, the pair is down 0.5% on the day and stands at 154.15.

He GBP/USD it broke above 1.2600 and gained 0.75% on Wednesday. After testing 1.2700 in the Asian session, the pair corrected and is trading flat near 1.2680.

He EUR/USD It gained 0.6% on Wednesday and closed the third consecutive day in positive. Early on Thursday, the pair remains in a consolidation phase slightly below 1.0900.

He Gold benefited from falling US Treasury yields and advanced to a three-week high near $2,400 before retreating slightly. In the European morning, XAU/USD remains stable near $2,390.

Inflation FAQ

What is Inflation?

Inflation measures the rise in prices of a representative basket of goods and services. General inflation is usually expressed as a month-on-month and year-on-year percentage change. Core inflation excludes more volatile items, such as food and fuel, which can fluctuate due to geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the target level of central banks, which are mandated to keep inflation at a manageable level, typically around 2%.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the variation in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage of inter-monthly and inter-annual variation. Core CPI is the target of central banks as it excludes food and fuel volatility. When the underlying CPI exceeds 2%, interest rates usually rise, and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually translates into a stronger currency. The opposite occurs when inflation falls.

What is the impact of inflation on currency exchange?

Although it may seem counterintuitive, high inflation in a country drives up the value of its currency and vice versa in the case of lower inflation. This is because the central bank will typically raise interest rates to combat higher inflation, attracting more global capital inflows from investors looking for a lucrative place to park their money.

How does inflation influence the price of Gold?

Gold was once the go-to asset for investors during times of high inflation because it preserved its value, and while investors often continue to purchase gold for its safe haven properties during times of extreme market turmoil, this is not the case. most of the time. This is because when inflation is high, central banks raise interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity cost of holding Gold versus an interest-bearing asset or placing money in a cash deposit account. On the contrary, lower inflation tends to be positive for Gold, as it reduces interest rates, making the shiny metal a more viable investment alternative.

Source: Fx Street

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