Forex Today: Mood improves on easing EU-US tensions, eyes on US data
Here is what you need to know on Thursday, January 22:
Market mood improves in the second half of the week as tensions between the United States (US) and the European Union (EU) ease. In the American session, the US Bureau of Economic Analysis will publish a revision to the third-quarter Gross Domestic Product (GDP) data and release the Personal Consumption Expenditure (PCE) Price Index figures for October and November. Additionally, investors will pay close attention to the weekly Initial Jobless Claims data.
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the New Zealand Dollar.
USD EUR GBP JPY CAD AUD NZD CHF USD -0.90% -0.60% 0.68% -0.64% -1.98% -2.01% -0.81% EUR 0.90% 0.31% 1.56% 0.25% -1.10% -1.12% 0.08% GBP 0.60% -0.31% 1.02% -0.06% -1.40% -1.43% -0.22% JPY -0.68% -1.56% -1.02% -1.30% -2.61% -2.63% -1.46% CAD 0.64% -0.25% 0.06% 1.30% -1.31% -1.35% -0.17% AUD 1.98% 1.10% 1.40% 2.61% 1.31% -0.03% 1.19% NZD 2.01% 1.12% 1.43% 2.63% 1.35% 0.03% 1.22% CHF 0.81% -0.08% 0.22% 1.46% 0.17% -1.19% -1.22%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).
Risk flows returned to markets late Wednesday after US President Donald Trump said that they have agreed on "the framework of a future deal with respect to Greenland" and added that they will not be imposing tariffs on eight European nations that were scheduled to go into effect on February 1. Following Tuesday's sharp decline, Wall Street main indexes gained more than 1% midweek. Early Thursday, US stock index futures trade marginally higher. Meanwhile, the US Dollar (USD) Index stays releativley quiet below 99.00 after snapping a two-day losing streak on Wednesday.
The data from Australia showed early Thursday that the Unemployment Rate declined to 4.1% in December from 4.3% in November. This print came in better than the market expectation of 4.4%. According to the other details of the report, the Employment Change was +65.2K in this period following the 28.7K decrease recorded in November. AUD/USD gathers bullish momentum on the back of upbeat data and trades at its highest level since October 2024 above 0.6800, rising about 0.7% on the day.
EUR/USD stays in a consolidation phase below 1.1700 after losing more than 0.3% on Wednesday. The European Central Bank (ECB) will publish the Monetary Policy Meeting Accounts later in the session and the European Commission will release preliminary Consumer Confidence Index data for January.
GBP/USD moves sideways above 1.3400 in the European session on Thursday following Wednesday's correction.
After struggling to find direction in the first half of the week, USD/JPY gains traction and advances toward 159.00 early Thursday. The Bank of Japan (BoJ) will announce monetary policy decisions in the Asian session on Friday.
Gold retreated from the record-high it set near $4,890 on Wednesday but closed the day in positive territory. Following an extended decline in the Asian session, XAU/USD found support and was last seen trading flat on the day above $4,800.
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%.
What is the Consumer Price Index (CPI)?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.
What is the impact of inflation on foreign exchange?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.
How does inflation influence the price of Gold?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.