Forex Today: Calm start to the week ahead of key events
Here is what you need to know on Monday, May 27:
The action in financial markets turns subdued at the beginning of the week. The European economic docket will feature IFO sentiment data from Germany and the US markets will remain closed in observance of the Memorial Day holiday. Later in the week, comments from central bank officials, inflation data from Germany, the Euro area and the US will be watched closely by market participants.
The US Dollar (USD) Index snapped a four-day winning streak and closed in negative territory on Friday but managed to register modest gains for the week. The USD Index fluctuates in a narrow channel below 105.00 in the European morning on Monday. Supported by the upbeat data releases from the US, the benchmark 10-year yield rose over 1% in the previous week.
US Dollar PRICE Last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.18% | -0.32% | 0.83% | 0.33% | 0.79% | 0.01% | 0.64% | |
| EUR | -0.18% | -0.53% | 0.72% | 0.16% | 0.65% | -0.16% | 0.47% | |
| GBP | 0.32% | 0.53% | 1.10% | 0.68% | 1.17% | 0.36% | 0.99% | |
| JPY | -0.83% | -0.72% | -1.10% | -0.51% | -0.03% | -0.79% | -0.18% | |
| CAD | -0.33% | -0.16% | -0.68% | 0.51% | 0.42% | -0.32% | 0.31% | |
| AUD | -0.79% | -0.65% | -1.17% | 0.03% | -0.42% | -0.81% | -0.19% | |
| NZD | -0.01% | 0.16% | -0.36% | 0.79% | 0.32% | 0.81% | 0.62% | |
| CHF | -0.64% | -0.47% | -0.99% | 0.18% | -0.31% | 0.19% | -0.62% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
USD/JPY edged higher ahead of the weekend and reached its strongest level since early May above 157.00 on Friday. The pair struggles to gather bullish momentum and trades slightly below 157.00 early Monday. Bank of Japan (BoJ) Governor Kazuo Ueda said on Monday that they have made progress in moving away from zero and lifting inflation expectations but added that they now must re-anchor them at the 2% target. Additionally, BoJ Director-General Of the Monetary Affairs Department Kazuhiro Masaki said that the changes in wages in real terms will move to positive territory on a year-on-year basis, adding that they need to keep an eye on energy prices and forex moves.
Japanese Yen stays calm amid softer US Dollar, thin trading.
Despite the broad-based USD strength last week, GBP/USD managed to register marginal gains for the week, supported by the stronger-than-forecast Consumer Price Index (CPI) data from the UK. The pair stays in a consolidation phase and trades at around 1.2750 in the European morning. UK markets will remain closed in observance of Spring Bank Holiday.
EUR/USD gained traction on Friday and erased a large portion of its weekly losses. The pair stays relatively quiet and moves up and down in a narrow band at around 1.0850.
Gold suffered heavy losses last week and dropped to its weakest level in two weeks below $2,330 on Friday. XAU/USD edges slightly higher and holds at around $2,340 to start the new week.
Gold price edges higher, Israel strikes Rafah and boosts safe-haven flows.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.