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Forex Today: Focus on SNB and BoE monetary policy announcements ahead of US data

Here’s what you need to know to trade today Thursday June 20:

Price action was subdued on Wednesday as US markets were closed in observance of the June 19 federal holiday. Monetary policy announcements from the Swiss National Bank (SNB) and the Bank of England (BoE) could increase volatility during European trading hours on Thursday. Later in the day, the US economic docket will include weekly Jobless Claims and Building Permits data for May. Investors will also continue to monitor comments from Federal Reserve (Fed) officials.

He US Dollar Index (DXY) posted small losses on Wednesday. With the 10-year US Treasury yield rising on Thursday, the DXY Index recovered some of this week’s losses. Meanwhile, US stock index futures trade mixed in the European morning. Nasdaq futures are up more than 0.5% while Dow futures are trading marginally lower on the day.

Price of the US Dollar this week

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

USD -0.25% -0.15% 0.49% -0.20% -0.78% -0.02% -0.77%
EUR 0.25% 0.12% 0.76% 0.05% -0.62% 0.29% -0.51%
GBP 0.15% -0.12% 0.74% -0.08% -0.76% 0.14% -0.62%
JPY -0.49% -0.76% -0.74% -0.60% -1.26% -0.37% -1.20%
CAD 0.20% -0.05% 0.08% 0.60% -0.63% 0.19% -0.54%
AUD 0.78% 0.62% 0.76% 1.26% 0.63% 0.97% 0.13%
NZD 0.02% -0.29% -0.14% 0.37% -0.19% -0.97% -0.74%
CHF 0.77% 0.51% 0.62% 1.20% 0.54% -0.13% 0.74%

The heat map shows percentage changes for 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 box will represent USD (base)/JPY (quote).

The BoE is widely expected to leave monetary policy adjustments unchanged after the June meeting. There will be no news conference, and the central bank could refrain from making significant changes before the July 4 election. He GBP/USD remains under modest bearish pressure and is trading slightly above 1.2700 at the start of the European session.

The SNB is expected to reduce the policy rate by 25 basis points (bps) to 1.25%. He USD/CHF fell sharply at the start of the week and hit its lowest level since mid-March below 0.8830. The pair has been consolidating slightly below 0.8850 since then.

He EUR/USD posted small gains on Wednesday but lost traction after encountering resistance near 1.0750. The pair is trading in negative territory around 1.0730 in the European morning on Thursday. The European Commission will publish preliminary Consumer Confidence data for June later in the day.

He USD/JPY posted gains for the fifth consecutive day on Wednesday. The pair continues to rise on Thursday and is now trading above 158.00.

He Gold It failed to make a notable move in either direction on Wednesday and closed the day virtually unchanged. XAU/USD gains bullish momentum in the European morning and is now trading above $2,340.

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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