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Forex Today: UK inflation data supports Sterling, Dollar consolidates ahead of Fed speeches

Here's what you need to know to trade today Wednesday April 17:

He American dollar remains stable against its main rivals after ending Tuesday higher. No high-profile data will be published on the US economic agenda, but several Federal Reserve (Fed) officials will give speeches on Wednesday. Eurostat will publish revisions to March inflation data during European trading.

Price of the US Dollar this week

Below is the percentage change of the US Dollar (USD) against the main currencies quoted this week. The US Dollar was the strongest currency against the Australian Dollar.

USD 0.21% -0.05% 0.42% 0.84% 0.80% 0.65% -0.20%
EUR -0.21% -0.27% 0.22% 0.63% 0.60% 0.45% -0.43%
GBP 0.05% 0.27% 0.49% 0.92% 0.86% 0.71% -0.17%
CAD -0.43% -0.22% -0.49% 0.41% 0.38% 0.22% -0.64%
AUD -0.83% -0.63% -0.90% -0.40% -0.02% -0.18% -1.04%
JPY -0.79% -0.59% -0.84% -0.38% 0.03% -0.13% -1.03%
NZD -0.64% -0.43% -0.71% -0.21% 0.20% 0.17% -0.86%
CHF 0.21% 0.42% 0.16% 0.64% 1.04% 1.01% 0.85%

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 Euro in the left column and scroll down the horizontal line to the Japanese Yen, the percentage change that appears in the box will represent EUR (base)/JPY (quote).

The United Kingdom's Office for National Statistics reported early Wednesday that the Annual inflation, measured by the variation in the Consumer Price Index (CPI), fell to 3.2% in March from 3.4% in February. Furthermore, the core CPI increased 4.2% in the same period. Both data exceeded analyst estimates of 3.1% and 4.1%, respectively, and contributed to the recovery of the Pound. After spending the Asian session in a narrow channel slightly above 1.2400, the pair GBP/USD gained traction and rose towards 1.2450.

United Kingdom: Inflation softens to 3.2% in March compared to 3.1% expected

The dovish comments from the Fed authorities and the caution of the markets helped the Dollar find demand in the American session and the Dollar Index closed on Tuesday for the fifth consecutive day in positive territory. Early on Wednesday, the 10-year US Treasury yield is moving sideways above 4.65% and US stock index futures are trading marginally lower. Israel has said it will retaliate against Iran and a war cabinet meeting is reported to be held on Wednesday to decide the appropriate response.

He EUR/USD recovered modestly after falling towards 1.0600 on Tuesday and closed the day practically unchanged. The pair remains relatively calm and moves up and down in a narrow band above 1.0600 during the European morning.

He Gold failed to make a decisive move in either direction on Tuesday as rising US Treasury yields made it difficult for the precious metal to benefit from the cautious market mood. XAU/USD continues to move sideways above $2,370 early on Wednesday.

Gold Price Forecast: XAU/USD pauses ahead of next bullish push, awaiting Fed speeches

Data from New Zealand showed early in the Asian session on Wednesday that the CPI rose 4% year-on-year in the first quarter, a sharp decline from the 4.7% increase recorded in the previous quarter. In quarterly terms, the CPI rose 0.6%. He NZD/USD rose after this report and was last seen trading in positive territory slightly above 0.5900.

He USD/JPY hit a new multi-decade high near 154.80 on Tuesday. The pair retreated slightly in the Asian session and appears to have stabilized around 154.50.

Frequently asked questions about central banks

What does a central bank do?

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%.

What does a central bank do when inflation is below or above the expected target?

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.

Who decides monetary policy and interest rates?

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.

Is there a president or head of a central bank?

Typically, there is a chairperson 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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