Forex Today: Market focus shifts to February PMI data
Here is what you need to know on Friday, February 21:
The action in financial markets quiets down on Friday as investors await preliminary February Manufacturing and Services Purchasing Managers' Index (PMI) data from Germany, the Eurozone, the UK and the US. In the second half of the day, the US economic calendar will also feature Existing Home Sales data for January and several Federal Reserve (Fed) policymakers will be delivering speeches heading into the weekend.
Following a two-day recovery, the US Dollar (USD) Index came under renewed bearish pressure during the American trading hours on Thursday and dropped to its lowest level in over two months near 106.30. The data from the US showed that the weekly Initial Jobless Claims rose to 219,000 from 214,000. Meanwhile, the benchmark 10-year US Treasury bond yield dropped below 4.5%, putting additional weight on the USD's shoulders. Early Friday, the index stays in a consolidation phase at around 106.50.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.01% | -0.68% | -1.17% | 0.00% | -0.61% | -0.68% | -0.08% | |
| EUR | 0.01% | -0.52% | -1.20% | 0.11% | -0.52% | -0.58% | 0.03% | |
| GBP | 0.68% | 0.52% | -0.59% | 0.63% | 0.05% | -0.06% | 0.55% | |
| JPY | 1.17% | 1.20% | 0.59% | 1.18% | 0.60% | 0.71% | 1.07% | |
| CAD | -0.00% | -0.11% | -0.63% | -1.18% | -0.59% | -0.69% | -0.09% | |
| AUD | 0.61% | 0.52% | -0.05% | -0.60% | 0.59% | -0.06% | 0.55% | |
| NZD | 0.68% | 0.58% | 0.06% | -0.71% | 0.69% | 0.06% | 0.61% | |
| CHF | 0.08% | -0.03% | -0.55% | -1.07% | 0.09% | -0.55% | -0.61% |
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).
In the early trading hours of the Asian session, the data from Japan showed that the National Consumer Price Index (CPI) in Japan increased by 4% on a yearly basis in January, up from 3.6% in December. Commenting on the policy outlook, "more interest rate hikes could come into sight if the price outlook continues to improve, and there might be some unpredictable impact on the economy," Bank of Japan (BoJ) Governor Kazuo Ueda said on Friday. After losing more than 1% on Thursday, USD/JPY stages a rebound on Friday and was last seen rising about 0.6% on the day at 150.50.
Jibun Bank Composite PMI in Australia edged higher to 51.2 in January from 51.1, suggesting that the private sector's economic activity continued to expand at a modest pace. In the meantime, Reserve Bank of Australia Governor Michele Bullock said that they will remain cautious about the prospects for further policy easing. After reaching its highest level since early December above 0.6400, AUD/USD corrects lower toward 0.6380 in the early European session.
The UK's Office for National Statistics (ONS) reported on Friday that Retail Sales in the UK rose by 1.7% on a monthly basis in January. This reading followed the 0.6% decrease recorded in December and beat the market expectation of 0.3% by a wide margin. GBP/USD holds its ground in the European morning and trades at a fresh two-month high above 1.2670.
EUR/USD benefited from the broad-based USD weakness and rose more than 0.7% on Thursday. The pair fluctuates in a narrow band at around 1.0500 early Friday.
Gold reached yet another record-high above $2,950 on Thursday but struggled to preserve its bullish momentum. In the European morning, XAU/USD trades in negative territory near $2,930.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.