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Mexican Peso gains as US inflation and Jobless Claims weaken US Dollar

Mexican Peso gains as US inflation and Jobless Claims weaken US Dollar

375103   February 29, 2024 23:49   FXStreet   Market News  


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  • Mexican Peso strengthens after US inflation report and unexpected rise in Initial Jobless Claims.
  • Banxico’s latest report highlights ongoing disinflation, suggesting potential for future rate cuts.
  • Market anticipates Banxico’s March 21 policy meeting amid discussions on gradual rate adjustments.

The Mexican Peso appreciated against the US Dollar in early trading on Thursday after an inflation report in the United States was revealed, while Initial Jobless Claims rose above expectations for the first time in four consecutive weeks. The USD/MXN stands at 17.07, down 0.11% following the data release.

Mexico’s economic docket saw an uptick in the Unemployment Rate but not substantial enough to move the USD/MXN. On Wednesday, the Bank of Mexico (Banxico) announced its report for the last quarter of 2023, noting that the disinflation process continued while Governor Victoria Rodriguez Ceja said the real ex-ante rate hit 7.47%, exceeding the Bank’s neutral rate, thus opening the door for reducing interest rates.

Deputy Governors Jonathan Heath and Omar Mejia subscribed to the idea that rate adjustments must be gradual, with Heath opening the door for a 25-basis-point cut and then reassessing the restrictiveness of the policy. He added that declaring victory over inflation is too premature and that cutting the benchmark rate more than he suggested would be a “big mistake.”

In that regard, Deputy Governor Irene Espinosa said Banxico’s Governing Council should consider external and internal factors affecting inflation. Her colleague Galia Borja adopted cautious decision-making based on emerging inflation data. Given the backdrop, USD/MXN traders are eyeing Banxico’s next monetary policy meeting on March 21.

On the other hand, the US Bureau of Economic Analysis (BEA) revealed that the Personal Consumption Expenditure (PCE) Price Index climbed as expected. Regarding the Federal Reserve’s preferred gauge for inflation, the Core PCE rose as expected, though it justified Fed officials’ rhetoric against premature interest rate cuts.

Daily digest market movers: Mexican Peso boosted by US inflation report

  • Mexico’s economy is expected to slow down due to higher interest rates set by Banxico at 11.25%. That’s the main reason that sparked a shift in three of the five governors of the Mexican Central Bank, who are eyeing the first rate cut at the March 21 meeting.
  • Banxico updated its economic growth projections for 2024 from 3.0% to 2.8% YoY and maintained 1.5% for 2025.
  • Expectations for the Mexican central bank to ease monetary policy in March remain high, with investors projecting 75 basis points of easing over the next six months. This means the Mexican interest rates, currently standing at 11.25%, would be lowered to 10.50% in the first half of 2024.
  • The latest inflation report in Mexico showed that headline and underlying inflation continued to dip toward Banxico’s goal of 3%, plus or minus 1%, while economic growth exceeded estimates but finished below Q3’s 3.3%.
  • Mexico’s economic data released during the week thus far:
    • The Unemployment Rate rose from 2.6% to 2.9% YoY in January, exceeding estimates of 2.8%.
    • The Balance of Trade for January revealed the country posted a trade deficit of $302 million.
    • Mexico’s Consumer Price Index (CPI) in the first half of February was 4.45%, down from 4.9% YoY.
    • Mexico’s Core CPI slowed from 4.78% to 4.63% on an annual basis.
    • Mexico’s GDP for Q4 2023 exceeded estimates of 2.4% YoY and hit 2.5%, less than Q3 2023 print of 3.3%.
  • Economic trade issues between Mexico and the US could depreciate the Mexican currency if the Mexican government fails to resolve its steel and aluminum dispute with the United States. US Trade Representative Katherine Tai warned the US could reimpose tariffs on the commodities.
  • January’s US PCE Index rose 2.4% YoY from 2.6%, as expected. The so-called Core PCE, which excludes volatile items, increased by 2.8% YoY, below December’s 2.9%, and aligned with the consensus.
  • Initial Jobless Claims in the US for the week ending February 24 grew 215K, exceeding estimates of 210K and the previous reading of 202K.
  • The USD/MXN fell following the US data release as market players increased the odds for the first 25-basis-point (bps) rate cut in June, from 49% to 54.1% a day ago. Meanwhile, 33% of investors expected the Fed to keep rates unchanged at the current level of 5.25%-5.50%.

Technical analysis: Mexican Peso climbs as USD/MXN hovers around 50-day SMA

The USD/MXN trades near the 50-day Simple Moving Average (SMA), which stands at 17.06, after the pair snapped three days of losses but resumed its downtrend on Thursday. The bearish bias is confirmed by the Relative Strength Index (RSI) staying below the 50-midline, keeping sellers hopeful of retesting the 17.00 psychological level. If traders clear that level, the exotic pair could dive to the year-to-date (YTD) lows of 16.78, followed by last year’s low of 16.62.

Conversely, if buyers reclaim the 17.20 area, further gains are seen. The next supply zone would be the 200-day SMA at 17.26 and the 100-day SMA at 17.31.

USD/MXN Price Action – Daily Chart

Mexican Peso FAQs

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.

The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.

Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.

As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.

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US politics: U.S. Senate Majority Leader Schumer open for passage of stopgap funding today
US politics: U.S. Senate Majority Leader Schumer open for passage of stopgap funding today

US politics: U.S. Senate Majority Leader Schumer open for passage of stopgap funding today

375102   February 29, 2024 23:33   Forexlive Latest News   Market News  

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US Dollar set to digest PCE numbers a touch softer
US Dollar set to digest PCE numbers a touch softer

US Dollar set to digest PCE numbers a touch softer

375101   February 29, 2024 23:33   FXStreet   Market News  


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  • The US Dollar trades flat to a touch softer in the PCE aftermath. 
  • Markets are looking for direction with PCE in line of expectations. 
  • The US Dollar Index trades around 104.00, unable to move away from any direction. 

The US Dollar (USD) is steadying in a very tight range in the US Personal Consumption Expenditures (PCE) Price Index data release aftermath. The Greenback is moving up and down around 104.00, though looks unable to unchain itself from the level in any direction. It looks like markets are still in a wait-and-see pattern and might look forward to March for the actual central bank rate decisions to shed more clarity on where to place the DXY. 

On the economic front, some lighter data ahead with the Kansas Fed Manufacturing Activity for February. No less than three, even four for those who want to stay up late, US Federal Reserve speakers set to release comments on the current monetary policy. Head of the St Louis Fed Christopher Waller advocated for three rate cuts this year in overnight comments. 

Daily digest market movers: Easing

  • At 13:30 GMT, both the Jobless Claims and Personal Consumption Expenditures Price Index were released:
    • Jobless Claims for this week:
      • Weekly Initial Jobless Claims went from 202,000 to 215,000.
      • Continuing Jobless Claims went from 1.860 million to 1.905 million. 
    • Personal Consumption Expenditures (PCE) Price Index for January:
      • The monthly Headline PCE accelerated from 0.2% to 0.3% as expected, while the yearly reading went from 2.6% to 2.4%.
      • Fore the core reading, which excludes the more volatile categories of food and energy, the monthly PCE went from 0.2% to 0.4%. The yearly core PCE went from 2.9% to 2.8%. Both as expected.
      • Personal Income increased, from 0.3% to 1.0%, while Personal Spending decelerated substantially, from 0.7% to 0.2%.
  • At14:45 GMT, the Chicago Purchasing Managers Index for February contracted from 46 to 44.
  • At 15:00 GMT, Pending Home Sales declined from 5.7% to -4.9%, which means the segment is in contraction.
  • the last economic number for this Thursday will be the Kansas City Fed Manufacturing Activity Index for February. The previous number was at -17, with no forecast pencilled in. 
  • A slew of US Federal Reserve speakers will make its way to the stage as well: 
    • Expect around 15:50 GMT comments from the head of the Atlanta Fed, Raphael Bostic.
    • Briefly after Bostic, around 16:00 GMT, the head of the Chicago Fed Austan Goolsbee will speaking..
    • Around 18:15 GMT, Loretta Mester, head of the Cleveland Fed, will also take the stage..
    • Overnight, at 01:10 GMT, John Williams from the New York Fed will shed his light as well at the start of Friday. 
  • Equities are applauding the in-line PCE report, which eases the negativeness from the red hot Consumer Price Index (CPI) report from two weeks ago. All US equity futures are in the green ahead of the US opening bell while european equities are near 0.50% of intraday gains. 
  • According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the March 20 meeting are at 97.5%, while chances of a rate cut stand at 2.5%. 
  • The benchmark 10-year US Treasury Note trades around 4.22%, near session’s low.

US Dollar Index Technical Analysis: Yawn, DXY unable to move away

The US Dollar Index (DXY) is postponing its day of ordeal by another week after even the recent PCE data release could not move the needle for the Greenback. The report almost fell completely in line with expectations, which were elevated after a hotter CPI print two weeks ago and some surprise upticks in the PCE data during the US Gross Domestic Product (GDP) release on Wednesday. Traders are again keeping their powder dry and are unwilling to pick a direction, possibly awaiting both the European Central Bank and the US Federal Reserve meetings in March before picking a direction and unchaining the DXY finally. 

To the upside, the 100-day Simple Moving Average (SMA) near 103.98 is still the first element acting as a cap. Should the US Dollar be able to cross 104.60, 105.12 is the next key level to keep an eye on. One step beyond there comes 105.88, the high from November 2023. Ultimately, 107.20 – the high of 2023 – could come back into scope. 

Looking down, the 200-day Simple Moving Average at 103.74 has been broken twice recently, making it a weak support. The 200-day SMA should not let go that easily though, so a small retreat back to that level could be more than granted. Ultimately, should it lose its force with the ongoing selling pressure, prices could fall to 103.16, the 55-day SMA, before testing 103.00. 

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger 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 may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining 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 named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck 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 in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually 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 principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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United States EIA Natural Gas Storage Change came in at -96B below forecasts (-88B) in February 23
United States EIA Natural Gas Storage Change came in at -96B below forecasts (-88B) in February 23

United States EIA Natural Gas Storage Change came in at -96B below forecasts (-88B) in February 23

375100   February 29, 2024 23:33   FXStreet   Market News  

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

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EUR/USD to remain under pressure as the Dollar is set to stay strong for some time – Rabobank
EUR/USD to remain under pressure as the Dollar is set to stay strong for some time – Rabobank

EUR/USD to remain under pressure as the Dollar is set to stay strong for some time – Rabobank

375099   February 29, 2024 23:29   FXStreet   Market News  


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The Euro (EUR) is the third best performer in the year to date after the US Dollar (USD) and the Pound Sterling (GBP). Economists at Rabobank analyze EUR/USD outlook.

Strong case for remaining bullish on the USD

While we acknowledge that the EUR has been more resilient than we expected so far this year, we still see fundamentals as favouring the USD.

We maintain our three-month forecast of 1.0500 and remain of the view that there is a higher chance of EUR/USD remaining in a 1.0400 to 1.1200 range over the next 18-24 months or so, than of the currency pair holding levels above 1.1500.

Our three-month forecast of 1.0500 is followed by an expectation of a moderate move higher to 1.0900 early next year as Fed rate cuts are extended. 

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Atlanta Fed GDPNow Q1 growth dips to 3.0% from 3.2% in its latest model estimate
Atlanta Fed GDPNow Q1 growth dips to 3.0% from 3.2% in its latest model estimate

Atlanta Fed GDPNow Q1 growth dips to 3.0% from 3.2% in its latest model estimate

375098   February 29, 2024 23:12   Forexlive Latest News   Market News  

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EUR/USD: Some upside potential in the short term – Commerzbank
EUR/USD: Some upside potential in the short term – Commerzbank

EUR/USD: Some upside potential in the short term – Commerzbank

375097   February 29, 2024 23:05   FXStreet   Market News  


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Economists at Commerzbank do not expect a weaker Dollar in the medium to long term. Thus, positive surprises for the Euro are only probable in the near term.

A strong Dollar is justified in the long run

We see some upside potential for EUR/USD in the short term.

Upwardly surprising Eurozone inflation and a more or less synchronised entry of the Fed and ECB into the rate cut cycle should have a slight net positive effect on the EUR.

In the medium term, however, no USD weakness should be justified. The current USD strength should be justified if (as we expect) the US will have a growth advantage over the Eurozone (and most Western industrialised countries) over our entire forecast period.

Source: Commerzbank Research

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US January pending home sales -4.9% versus 1.0% expected
US January pending home sales -4.9% versus 1.0% expected

US January pending home sales -4.9% versus 1.0% expected

375096   February 29, 2024 23:02   Forexlive Latest News   Market News  

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United States Pending Home Sales (YoY) fell from previous 1.3% to -8.8% in January
United States Pending Home Sales (YoY) fell from previous 1.3% to -8.8% in January

United States Pending Home Sales (YoY) fell from previous 1.3% to -8.8% in January

375095   February 29, 2024 23:02   FXStreet   Market News  

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

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United States Pending Home Sales (MoM) below expectations (1%) in January: Actual (-4.9%)
United States Pending Home Sales (MoM) below expectations (1%) in January: Actual (-4.9%)

United States Pending Home Sales (MoM) below expectations (1%) in January: Actual (-4.9%)

375094   February 29, 2024 23:02   FXStreet   Market News  

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

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EUR/GBP trims gains following German inflation data

EUR/GBP trims gains following German inflation data

375092   February 29, 2024 22:56   FXStreet   Market News  


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  • The EUR/GBP is trading at 0.8550, after peaking at a high of 0.8570.
  • The Core HICP in Germany grew at a slower pace than expected in February.
  • Soft inflation figures fuel the hopes of sooner cuts by the ECB.

the EUR/GBP pair recorded a slight gain in Thursday’s session but gave up gains which took the pair to a high of 0.8570. This comes on the heels of softer inflation data from Germany’s Harmonized Index of Consumer Prices (HICP), which fueled bets of sooner policy shifts by the European Central Bank (ECB).

February’s preliminary HICP from Germany, showed a continued but slower inflation rate at 2.7% year-on-year, aligning with forecasts yet decreasing from January’s 3.1%. The monthly inflation rate was as anticipated at 0.6%, a rebound from January’s 0.2% decline. Core inflation, a key focus for the ECB, rose by 2.5%, slightly below the expected 2.6% and down from the previous 2.9%. This slowdown in core inflation growth suggests potential early policy adjustments by the ECB, as President Christine Lagarde hinted at possible rate cuts in the upcoming summer with over 100 bps of easing expected by the European bank in 2024.

EUR/GBP technical analysis

Considering the Relative Strength Index (RSI) for the EUR/GBP pair, the index holds in positive territory, confirming the market is primarily influenced by buyers at the current moment but its flat nature, suggests a market equilibrium, with neither buyers nor sellers gaining additional ground.

Regarding the Moving Average Convergence Divergence (MACD) histogram, it exhibits a falling trend with a sequence of decreasing green bars, which portrays a picture of negative momentum building up. This combination of signals suggests that the buyers are struggling to hold their momentum, but in case they hold above the 20-day Simple Moving Average (SMA) the outlook for the short term, may remain somewhat positive.

EUR/GBP daily chart

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Breaking: US Core PCE inflation edges lower to 2.8% as expected
Breaking: US Core PCE inflation edges lower to 2.8% as expected

Breaking: US Core PCE inflation edges lower to 2.8% as expected

375091   February 29, 2024 22:51   FXStreet   Market News  


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Inflation in the US, as measured by the change in Personal Consumption Expenditures (PCE) Price Index, declined to 2.4% on a yearly basis in January, the US Bureau of Economic Analysis reported on Thursday. This reading followed the 2.6% increase recorded in December and came in line with the market expectation. On a monthly basis, the PCE Price Index rose 0.3% as forecast.

The Core PCE Price Index, which excludes volatile food and energy prices, rose 2.8% on a yearly basis, matching analysts’ estimate. 

Other details of the report showed that Personal Income grew 1% in January, while Personal Spending rose 0.2%.

Follow our live coverage of the PCE inflation data and the market reaction.

Market reaction to PCE inflation data

These figures don’t seem to be having a noticeable impact on the US Dollar’s performance against its rivals. At the time of press, the US Dollar Index was virtually unchanged on the day at 103.90.

US Dollar price today

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

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.04% 0.10% 0.01% -0.16% -0.44% 0.15% 0.07%
EUR -0.05%   0.01% 0.00% -0.14% -0.48% 0.12% 0.03%
GBP -0.09% -0.08%   -0.08% -0.19% -0.55% 0.07% 0.07%
CAD -0.04% -0.06% 0.06%   -0.15% -0.42% 0.13% 0.03%
AUD 0.16% 0.07% 0.26% 0.12%   -0.33% 0.32% 0.17%
JPY 0.43% 0.39% 0.63% 0.46% 0.32%   0.71% 0.50%
NZD -0.14% -0.11% -0.02% -0.15% -0.26% -0.57%   0.01%
CHF -0.12% -0.13% -0.02% -0.14% -0.28% -0.56% 0.04%  

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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).


This section below was published as a preview of the US PCE inflation data at 07:00 GMT.

  • The Core Personal Consumption Expenditures Price Index is set to rise 0.4% MoM and 2.8% YoY in January.
  • Markets see a strong chance of the Federal Reserve keeping the policy rate unchanged in March and May.
  • The slowing progress of PCE inflation towards the 2% target could help the US Dollar stay resilient against its rivals.

The Core Personal Consumption Expenditures (PCE) Price Index, the US Federal Reserve’s (Fed) preferred inflation measure, will be published on Thursday by the US Bureau of Economic Analysis (BEA) at 13:30 GMT.

What to expect in the Federal Reserve’s preferred PCE inflation report?

The Core PCE Price Index, which excludes volatile food and energy prices, is seen as the more influential measure of inflation in terms of Fed positioning. The index is forecast to rise 0.4% on a monthly basis in January, at a stronger pace than the 0.2% increase recorded in December. January Core PCE is also projected to grow at an annual pace of 2.8%, compared to 2.9% in December. The headline PCE inflation is forecast to soften to 2.4% (YoY).

Previewing the PCE inflation report, “The market remains expectant about the final impact on PCE prices following hot January CPI and PPI inflation,” said Oscar Munoz, Chief US Macro Strategist at TD Securities, in a weekly report. “TD expects those robust increases to result in a solid 0.36% m/m jump for the core PCE. The PCE’s supercore likely also surged but by an even stronger 0.55%.”

When will the PCE inflation report be released, and how could it affect EUR/USD?

The PCE inflation data is slated for release at 13:30 GMT. The monthly Core PCE Price Index gauge is the most-preferred inflation reading by the Fed, as it’s not distorted by base effects and provides a clear view of underlying inflation by excluding volatile items. Investors, therefore, pay close attention to the monthly Core PCE figure.

Stronger-than-forecast Consumer Price Index (CPI) and Producer Price Index (PPI) readings in January, combined with the impressive labor market report, revived expectations for the Fed to continue to delay the policy pivot.

The CME FedWatch Tool shows that markets are fully pricing in a no-change in the Fed policy rate in March and see an 85% probability for another hold in May. Although the market positioning suggests that there isn’t much room for additional USD gains in case a strong monthly core PCE reading confirms a Fed policy pause in May, investors could see this data as a sign that could potentially reduce the number of total rate cuts in 2024. Hence, a print above the market expectation could provide a boost to the USD and weigh on EUR/USD.

On the other hand, a softer-than-forecast increase in the monthly core PCE is unlikely to revive expectations for a rate cut in May. Nevertheless, such a reading could help the risk mood improve and allow EUR/USD to edge higher by making it difficult for the USD to hold its ground.

FXStreet Analyst Eren Sengezer offers a brief technical outlook for EUR/USD and explains:

“The 200-day Simple Moving Average (SMA) and the 100-day SMA form a pivot level for EUR/USD at 1.0820-1.0830. If the pair fails to stabilize above that level, it could target 1.0700 (Fibonacci 61.8% retracement of the October-December uptrend) on the downside. In case EUR/USD confirms 1.0820-1.0830 as support, 1.0900 (psychological level, static level) could be seen as the next bullish target before 1.0950 (Fibonacci 23.6% retracement).”

US Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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