Forex Today: US Dollar shows resilience ahead of Fed meeting
Here is what you need to know on Tuesday, July 28:
The relief rally that was triggered by the United States (USD) and Iran's decision to pause strikes remained short-lived on Monday and the US Dollar (USD) Index ended the day virtually unchanged following a bearish opening. Market participants cling to a cautious stance early Tuesday as they gear up for the Federal Reserve's monetary policy meeting.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.39% | 1.03% | 0.75% | 0.37% | 0.40% | 1.14% | 1.13% | |
| EUR | -0.39% | 0.59% | 0.34% | -0.06% | -0.02% | 0.73% | 0.74% | |
| GBP | -1.03% | -0.59% | -0.30% | -0.64% | -0.60% | 0.19% | 0.14% | |
| JPY | -0.75% | -0.34% | 0.30% | -0.45% | -0.38% | 0.76% | 0.42% | |
| CAD | -0.37% | 0.06% | 0.64% | 0.45% | 0.14% | 1.22% | 0.77% | |
| AUD | -0.40% | 0.02% | 0.60% | 0.38% | -0.14% | 0.72% | 0.74% | |
| NZD | -1.14% | -0.73% | -0.19% | -0.76% | -1.22% | -0.72% | -0.05% | |
| CHF | -1.13% | -0.74% | -0.14% | -0.42% | -0.77% | -0.74% | 0.05% |
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).
Citing an Iranian official, CNN reported that Iran is not engaged in direct ceasefire talks with the US and that Tehran will "never allow the United States to determine the timing of war and peace." On the other hand, US President Donald Trump claimed that they were having "very friendly talks" with Tehran but added that they are prepared to go back to taking taking military action if these negotiations were to fail.
After losing about 9% on Monday, the barrel of West Texas Intermediate (WTI) stays relatively quiet early Tuesday and trades modestly lower on the day, at around $83.50.
Meanwhile, the selling pressure surrounding technology stocks further weighed on market mood in the second half of the day on Monday. In the early European session on Tuesday, Nasdaq futures are down about 1%, while the USD Index holds steady at around 101.50. Later in the day, the Conference Board will publish the Consumer Confidence Index data for July.
Chip selloff reverses early gains in US equities
Strategists at Deutsche Bank note that US equities “rallied at the open on the retreat in oil prices” but later “whipsawed lower after chip stocks sold off.” They highlight chip-equipment manufacturer ASML, whose shares fell “-8.41%” after the Information reported that a Chinese company had successfully started mass production of deep ultraviolet lithography machines needed to create advanced semiconductors. According to Deutsche Bank, “the news led to a decline across other chip-equipment peers, with the Philly Semi Stock Exchange Index down -2.23% yesterday.” Nvidia was also caught in the downdraft, with its shares “-4.99%” after it was revealed that the company was working on AI deals “worth more than $750bn,” which Deutsche Bank says renewed investor worries on “circular AI financing.”
EUR/USD turned south in the second half of the day on Monday to close flat. The pair stays quiet in the European morning and moves sideways below 1.1400.
Kocher flags conditional tightening risk as oil spike keeps Euro bulls alert
European Central Bank (ECB) Governing Council member Martin Kocher's speech scored a 6.2/10 in FXS Speechtracker late last week, slightly below the 6.4/10 historic average as the emphasis on acting “if the inflation outlook becomes worse” and on deteriorating medium-term expectations marked a mildly hawkish tone. Concern about recent oil market developments and a pledge to be “vigilant for the next couple of weeks” reinforced a conditional tightening bias.
At the same time, the absence of “hard evidence of second-round effects” and the view that growth is weak but not recessionary tempered the hawkishness and argued against imminent aggressive moves.
GBP/USD failed to preserve its bullish momentum and ended the day in negative territory. The pair consolidates at around 1.3300 in the early European session on Tuesday.
Gold (XAU/USD) opened with a bullish gap on Monday and climbed above $4,100. The precious metal reversed its direction in the American session ay and erased a large portion of its daily gains. XAU/USD stays under modest bearish pressure and trades near $4,050 on Tuesday.
USD/JPY declined below 163.50 in the European session on Monday but staged a rebound in the second half of the day. The pair holds steady at around 163.70 on Tuesday. Japan's Finance Minister (FM) Satsuki Katayama said earlier in the day that they need to communicate with financial and Japanese Government Bonds (JGBs) markets in run up to budget compilation and explain the administration’s intentions towards the fiscal policy stance.
Reserve Bank of Australia (RBA) Governor Michele Bullock said early Tuesday that they remain ready to raise the policy rate if needed and added that the underlying inflation is still too high despite evolving as expected. AUD/USD stays on the back foot early Tuesday and trades below 0.7000.
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.
