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Forex Today: Focus is on the second round of Powell’s testimony and Fed statements

Here’s what you need to know on Wednesday, July 10:

Major currency pairs continue to trade in familiar midweek ranges as investors look for the next catalyst. Later in the day, Federal Reserve (Fed) Chairman Jerome Powell will deliver the Semiannual Monetary Policy Report and answer questions before the House Financial Services Committee on the second day of his testimony before Congress. Several other Fed policymakers will also deliver speeches during US trading hours.

US Dollar PRICE This week

The table below shows the percentage change of the US Dollar (USD) against the major currencies this week. The US Dollar was the strongest currency against the New Zealand Dollar.

USD 0.17% 0.14% 0.39% -0.10% 0.04% 0.74% 0.12%
EUR -0.17% 0.18% 0.54% 0.05% 0.03% 0.92% 0.30%
GBP -0.14% -0.18% 0.33% -0.11% -0.15% 0.74% 0.11%
JPY -0.39% -0.54% -0.33% -0.49% -0.34% 0.50% -0.22%
CAD 0.10% -0.05% 0.11% 0.49% 0.09% 0.84% 0.23%
AUD -0.04% -0.03% 0.15% 0.34% -0.09% 0.89% 0.25%
NZD -0.74% -0.92% -0.74% -0.50% -0.84% -0.89% -0.63%
CHF -0.12% -0.30% -0.11% 0.22% -0.23% -0.25% 0.63%

The heatmap shows percentage changes of major currencies. The base currency is selected from the left column, while the quote currency is selected 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 chart will represent the USD (base)/JPY (quote).

In his prepared remarks, Powell told the Senate Banking Committee on Tuesday that more good data would strengthen their confidence in inflation, repeating that it will not be appropriate to cut the policy rate until they have more confidence. Commenting on the latest jobs report, “the most recent labor market data sent a pretty clear signal that the labor market has cooled considerably,” he noted. These comments failed to trigger a noticeable market reaction. The Dollar Index closed with marginal gains, while major U.S. stock indexes ended the day little changed.

During Asian trading hours, data from China showed that the Consumer Price Index declined by 0.2% on a monthly basis in June, bringing the annual CPI inflation rate to 0.2% from 0.3% in May. Meanwhile, the Reserve Bank of New Zealand announced that it left the policy rate unchanged at 5.5% as widely expected. The RBNZ said in its policy statement that there are signs suggesting that persistent inflation will ease in line with falling capacity pressures and firms’ pricing intentions. The NZD/USD turned south following this event and was last seen trading below 0.6100, where it was down more than 0.5% on a daily basis.

EUR/USD The pair posted small losses on Tuesday but managed to hold comfortably above 1.0800. Early on Wednesday, the pair is trading slightly higher on the day around 1.0820.

GBP/USD retreated on Tuesday and ended the day below 1.2800. The pair is clinging to small gains near this level in the European morning.

After Monday’s sharp fall, the Gold made a technical correction and posted small gains on Tuesday. XAU/USD struggles to gain bullish momentum on Wednesday but remains afloat above $2,370.

USD/JPY rose after finding support near 161.00 and closed in positive territory on Tuesday. The pair remains firm at the start of the European session and is trading around 161.50.

The Fed FAQs

Monetary policy in the United States is directed by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and to promote full employment. Its main tool for achieving these goals is to adjust interest rates. When prices rise too quickly and inflation exceeds the Fed’s 2% target, the Fed raises interest rates, increasing borrowing costs throughout the economy. This translates into a strengthening of the 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 can lower interest rates to encourage borrowing, which weighs on the greenback.

The Federal Reserve (Fed) holds eight meetings a year, at which the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC consists of twelve Federal Reserve officials: the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the 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 called Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a jammed 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 of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE typically 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 capital of maturing bonds in its portfolio to buy new bonds. It is usually positive for the value of the US dollar.

Source: Fx Street

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