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Forex Today: Post-CPI USD selling halts pending US producer prices

This is what you need to know to trade today Thursday June 13:

The US Dollar (USD) appears to have stabilized in the early part of Thursday after suffering heavy losses against its major rivals due to subdued inflation data on Wednesday. In the second half of the day, the US economic agenda will include the weekly initial jobless claims data and the Producer Price Index figures for May.

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 weakest against the New Zealand dollar.

USD EUR GBP JPY CAD AUD NZD CHF
USD -0.02% -0.47% 0.25% -0.11% -0.94% -1.00% -0.22%
EUR 0.02% -0.10% 0.54% 0.17% -0.65% -0.72% 0.04%
GBP 0.47% 0.10% 0.76% 0.28% -0.55% -0.62% 0.14%
JPY -0.25% -0.54% -0.76% -0.35% -1.27% -1.35% -0.44%
CAD 0.11% -0.17% -0.28% 0.35% -0.80% -0.89% -0.12%
AUD 0.94% 0.65% 0.55% 1.27% 0.80% -0.07% 0.69%
NZD 1.00% 0.72% 0.62% 1.35% 0.89% 0.07% 0.77%
CHF 0.22% -0.04% -0.14% 0.44% 0.12% -0.69% -0.77%

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).

The Bureau of Labor Statistics reported Wednesday that U.S. inflation, as measured by the change in the Consumer Price Index (CPI), fell to 3.3% annually in May from 3.4% in April. The annual core CPI, which excludes volatile food and energy prices, rose 3.4%, compared with analysts’ estimate of 3.5%. On a monthly basis, the CPI was unchanged, while the core CPI increased by 0.2%. The USD Index turned south and fell below 104.50 with immediate reaction.

Later in the day, the Federal Reserve (Fed) announced that it left policy adjustments unchanged after the June meeting, as widely anticipated. The revised Summary of Economic Projections, the so-called dot-plot published alongside the monetary policy statement, showed that 4 of 19 officials did not see rate cuts in 2024, 7 projected a rate reduction of 25 basis points (bps), while which 8 marked a reduction of 50 bps in the policy rate.

At the post-meeting press conference, Fed Chair Jerome Powell acknowledged May’s encouraging inflation data, but said they need to see more “good data” to bolster their confidence that inflation will move sustainably toward the 2% target. Powell further reiterated the data-dependent approach to policy and helped the USD find a foothold. Following the Fed meeting, the S&P 500 index gained 0.85%, the Nasdaq Composite rose 1.3%, while the Dow Jones industrial average lost 0.1%.

He EUR/USD rose above 1.0850 on Wednesday, but erased a portion of its daily gains later in the US session. The pair remains stable around 1.0800 in the European morning on Thursday.

He GBP/USD It touched its highest level since early March above 1.2850 on Wednesday, but struggled to maintain its bullish momentum. At press time, the pair is trading modestly lower on the day around 1.2780.

He USD/JPY recorded small losses on Wednesday and rose again above 157.00 in the European morning on Thursday. The Bank of Japan will announce monetary policy decisions during Asian trading hours on Friday.

Data from Australia showed the unemployment rate fell to 4% in May from 4.1% in April, as expected. Employment change stood at +39,700, exceeding the market expectation of +30,000. After rising almost 1% on Wednesday, the AUD/USD struggled to extend its rally despite the positive data and retreated to the 0.6650 area on Thursday.

He Gold posted modest gains for the third straight trading day on Wednesday. With the 10-year US Treasury yield stabilizing above 4.3% following Wednesday’s sharp decline, however, XAU/USD is finding it difficult to attract bulls. At press time, the pair is down 0.5% on the day at $2,312.

Inflation FAQs

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%.

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.

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.

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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