Forex Today: US Dollar retreats after soft inflation data, focus shifts to BoC rate decision
Here is what you need to know on Wednesday, July 15:
The US Dollar (USD) remains under bearish pressure in the European session on Wednesday after weakening against its major rivals on Tuesday. In the second half of the day, the US Bureau of Labor Statistics will publish the Producer Price Index (PPI) data for June and the Bank of Canada (BoC) will announce monetary policy decisions.
US Dollar Price This week
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 | -0.17% | -0.14% | 0.32% | -0.71% | -0.49% | -0.90% | 0.23% | |
| EUR | 0.17% | 0.03% | 0.52% | -0.55% | -0.37% | -0.73% | 0.41% | |
| GBP | 0.14% | -0.03% | 0.41% | -0.56% | -0.40% | -0.77% | 0.43% | |
| JPY | -0.32% | -0.52% | -0.41% | -1.10% | -0.81% | -1.25% | -0.12% | |
| CAD | 0.71% | 0.55% | 0.56% | 1.10% | 0.30% | -0.16% | 1.00% | |
| AUD | 0.49% | 0.37% | 0.40% | 0.81% | -0.30% | -0.36% | 0.69% | |
| NZD | 0.90% | 0.73% | 0.77% | 1.25% | 0.16% | 0.36% | 1.20% | |
| CHF | -0.23% | -0.41% | -0.43% | 0.12% | -1.00% | -0.69% | -1.20% |
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).
On Tuesday, the BLS reported that annual inflation in the US, as measured by the change in the Consumer Price Index, softened to 3.5% in June from 4.2% in May. On a monthly basis, the CPI declined by 0.4%, while the core CPI was unchanged. All these prints came in below analysts' estimate and triggered a USD selloff. Although Federal Reserve (Fed) Chairman Kevin Warsh refrained from commenting directly on the soft inflation report during his congressional testimony, the USD Index lost more than 0.3% on the day. In the early European session, the index stays in negative territory below 101.00.
Warsh underscores Fed resolve on inflation
Fed Chair Warsh’s testimony scored 7/10 on the FXS Speechtracker, in line with the 7/10 historical average, signaling a steady, firmly anti-inflation stance rather than a tonal shift. The key remark that “if we get policy right – and we will – the inflation surge of the last five years will be a thing of the past” reinforces confidence in the Fed’s ability to subdue price pressures, backed by explicit “no tolerance” language on persistent inflation. With solid economic activity, accelerating AI-related business investment, and a stable labor market offsetting a lagging housing sector, his overall tone was moderately hawkish.
The FXS Fed Sentiment Index was unchanged at 127.19, keeping the Fed firmly in hawkish territory relative to the neutral 100 benchmark.
In his second day of testimony, Warsh will appear before the Senate Committee on Banking, Housing and Urban Affairs.
In the meantime, there are no signs of a de-escalation in the Middle East. The US has imposed its naval blockade of Iranian ports and the US military launched attacks for a fourth consecutive night. In response, Iran’s Islamic Revolutionary Guard Corps said it attacked US military assets in Bahrain, Kuwait and Jordan. After rising to its highest level in a month above $80 per barrel on Tuesday, West Texas Intermediate (WTI) crude Oil trades sideways at around $79 on Wednesday.
The data from China showed earlier in the day that the Gross Domestic Product (GDP) expanded at an annual rate of 4.3% in the second quarter. This print followed the 5% growth recorded in the first quarter and came in below the market expectation of 4.5%. AUD/USD struggles to build on Tuesday's strong gains and trades in a narrow channel below 0.6700 in the European morning on Wednesday.
EUR/USD stays in a consolidation phase above 1.1400 after rising about 0.4% on Tuesday. Eurostat will publish Industrial Production data for May later in the session.
The BoC is forecast to keep the policy rate unchanged at 2.2% following the July meeting. After falling about 0.7% on Tuesday, USD/CAD stabilizes at around 1.4050 in the European morning on Wednesday.
USD/JPY registered marginal losses on Tuesday despite the broad-based USD weakness. The pair fluctuates in a tight band above 162.00 early Wednesday.
GBP/USD holds steady at around 1.3400 after closing in positive territory on Tuesday.
Gold (XAU/USD) staged a rebound and erased a portion of its weekly losses on Tuesday. With tensions in the Middle East remaining high midweek, the precious metal stays on the backfoot and declines toward $4,000.
Inflation FAQs
What is inflation?
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.