Forex Today: US May inflation report to ramp up market volatility
Here is what you need to know on Wednesday, June 11:
The trading action in financial markets remains choppy early Wednesday as investors' search for the next catalyst continues. In the second half of the day, the US Bureau of Labor Statistics will publish the Consumer Price Index (CPI) data for May and the US Treasury will hold a 10-year note auction.
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 strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.19% | 0.36% | 0.19% | -0.12% | -0.23% | -0.23% | 0.14% | |
| EUR | 0.19% | 0.53% | 0.36% | 0.06% | -0.02% | -0.05% | 0.31% | |
| GBP | -0.36% | -0.53% | -0.08% | -0.48% | -0.54% | -0.58% | -0.22% | |
| JPY | -0.19% | -0.36% | 0.08% | -0.30% | -0.47% | -0.47% | -0.17% | |
| CAD | 0.12% | -0.06% | 0.48% | 0.30% | -0.13% | -0.11% | 0.25% | |
| AUD | 0.23% | 0.02% | 0.54% | 0.47% | 0.13% | -0.04% | 0.33% | |
| NZD | 0.23% | 0.05% | 0.58% | 0.47% | 0.11% | 0.04% | 0.37% | |
| CHF | -0.14% | -0.31% | 0.22% | 0.17% | -0.25% | -0.33% | -0.37% |
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).
The US Dollar (USD) held its ground on Tuesday, with the USD Index ending the day marginally higher. Following a two-day talk, the United States (US) and China have decided to ease export curbs, including the ones on rare earths, and agreed on a framework to keep the tariff truce alive. Wall Street's main indexes registered modest gains following this development. In the meantime, Bloomberg reported late Tuesday that a federal appeals court has ruled that US President Donald Trump’s broad tariffs can remain in effect while legal appeals continue, Early Wednesday, the USD Index stays in positive territory above 99.00 and US stock index futures lose about 0.2%.
Annual inflation in the US, as measured by the change in the CPI, is forecast to rise to 2.5% in May from 2.3% in April. In the same period, the core CPI is seen rising 2.9%.
EUR/USD extends its sideways grind at around 1.1400 in the European morning on Wednesday after closing virtually unchanged on Tuesday.
GBP/USD closed in negative territory on Tuesday as the disappointing labor market data weighed on Pound Sterling. The pair stays on the back foot and trades below 1.3500 in the early European session on Wednesday. The UK's Office for National Statistics will publish monthly Industrial Production, Manufacturing Production and Gross Domestic Product data for April on Thursday.
USD/JPY registered small gains on Tuesday and erased Monday's losses. The pair edges higher on Wednesday and trades above 145.00. The data from Japan showed in the Asian session that the Producer Price Index (PPI) rose 3.2% on a yearly basis in May. This print followed the 4.1% increase reported in April and came in below the market expectation of 3.5%.
After failing to make a decisive move in either direction on Monday and Tuesday, Gold stretches higher and trades in positive territory at around $3,340 in the European session on Wednesday.
Inflation FAQs
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%.
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.
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.
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.