Hawkish FOMC Minutes Lift US Dollar Ahead of Key Inflation Data

VaselineOctober 10, 2024

0 4 minutes read

Here’s what you need to know on Thursday, October 10:

After remaining relatively quiet since the start of the week, the US dollar (USD) gained bullish momentum in US trading hours on Wednesday, with the USD index climbing to its highest level since mid-August near 103.00. The European Central Bank (ECB) will publish the Accounts of the monetary policy meeting later in the European session. In the second half of the day, US consumer price index (CPI) data will be closely watched by market participants.

PRICE USD this week

The table below shows the percentage change in the US dollar (USD) against the major listed currencies this week. The US dollar was strongest against the New Zealand dollar.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.28%	0.29%	0.30%	1.05%	0.93%	1.21%	0.12%
EURO	-0.28%		0.07%	0.05%	0.79%	0.62%	0.92%	-0.19%
GBP	-0.29%	-0.07%		-0.06%	0.73%	0.55%	0.88%	-0.14%
JPY	-0.30%	-0.05%	0.06%		0.73%	0.61%	0.85%	-0.14%
CAD	-1.05%	-0.79%	-0.73%	-0.73%		-0.08%	0.17%	-0.92%
AUD	-0.93%	-0.62%	-0.55%	-0.61%	0.08%		0.34%	-0.77%
NZD	-1.21%	-0.92%	-0.88%	-0.85%	-0.17%	-0.34%		-1.05%
CHF	-0.12%	0.19%	0.14%	0.14%	0.92%	0.77%	1.05%

The heatmap shows the percentage changes of major currencies against each other. The base currency is chosen from the left column, while the quoted currency is chosen from the top row. For example, if you choose the US dollar in the left column and move along the horizontal line to the Japanese yen, the percentage change shown in the box will be USD (base)/JPY (quote).

The bullish tone from the minutes of the September meeting of the Federal Reserve (Fed) boosted the USD on Wednesday evening. The publication found that while a substantial majority of Fed officials supported the 50 basis point (bps) cut, there was an even broader consensus that this initial step would not lock the Fed into a specific pace for future rate cuts . In addition, some participants favored only a 25bp cut in the policy rate cut, and others indicated that they could have supported this decision as well.

Annual US CPI inflation is expected to ease to 2.3% in September from 2.5% in August. Core CPI, which excludes volatile food and energy prices, is expected to rise 0.2% on a monthly basis. Ahead of key CPI data, the USD index remains in a consolidation phase, while US stock index futures are trading marginally lower.

Earlier in the day, data from Germany showed retail sales rose 1.6 percent in August. This reading failed to trigger a noticeable reaction in the EUR/USD. After losing nearly 0.4% on Wednesday, the pair is trading in a tight range below 1.0950 early Thursday.

GBP/USD it fell in the second half of the day on Wednesday and reached an exciting distance of 1.3050. The pair is holding up in the European morning on Thursday, but remains below 1.3100.

Following Tuesday’s undecided action, USD/JPY gained traction and posted gains on Wednesday. The pair hit its highest level since early August above 149.50 during Asian trading hours on Thursday before pulling back towards 149.00.

Gold extended its slide and ended its sixth consecutive day of trading in negative territory on Wednesday. XAU/USD struggles for bullish momentum but manages to hold above $2,600 in European morning on Thursday.

Frequently asked questions about inflation

Inflation measures the increase in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change month-on-month (month-on-month) and year-on-year (YoY). Core inflation excludes more volatile items such as food and fuel, which can fluctuate due to geopolitical and seasonal factors. Core inflation is the figure that economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The consumer price index (CPI) measures the change in the prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change from month to month (month-to-month) and year-to-year (year-to-year). Core CPI is the figure targeted by central banks because it excludes volatile food and fuel inputs. When core CPI rises above 2%, higher interest rates usually result, and vice versa when it falls below 2%. Because higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country increases the value of its currency, and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat higher inflation, which attracts more global capital inflows from investors looking for a profitable place to park their money.

Previously, gold was the asset investors turned to during periods of high inflation because it held its value, and while investors will often buy gold for its safe haven properties during periods of extreme market turbulence, this is not the case with most of the time. . This is because when inflation is high, central banks will raise interest rates to combat it. Higher interest rates are negative for gold because they increase the opportunity cost of holding gold versus an interest-bearing asset or putting money in a cash deposit account. On the other hand, lower inflation tends to be positive for gold as it lowers interest rates, making the shiny metal a more viable investment alternative.

VaselineOctober 10, 2024

0 4 minutes read

PRICE USD this week

Frequently asked questions about inflation

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