What You Need to Know on Friday, August 29th
US Dollar (USD) The US dollar is showing some signs of recovery after experiencing three days of losses. Market participants will be keeping a close eye on upcoming consumer price index (CPI) data from Germany and the personal consumption expenditures (PCE) price index from the US, which is a key indicator for Federal Reserve inflation rates.
This Week’s US Dollar Price
The table below outlines how the US dollar (USD) has performed against various currencies this week. Notably, the US dollar has struggled the most against the Australian dollar.
| Currency | USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF |
|---|---|---|---|---|---|---|---|---|
| USD | 0.52% | 0.20% | 0.21% | -0.49% | -0.61% | -0.33% | 0.08% | |
| EUR | -0.52% | -0.32% | -0.38% | -1.00% | -1.05% | -0.85% | -0.43% | |
| GBP | -0.20% | 0.32% | -0.20% | -0.68% | -0.79% | -0.53% | -0.11% | |
| JPY | -0.21% | 0.38% | 0.20% | -0.63% | -0.77% | -0.46% | 0.00% | |
| CAD | 0.49% | 1.00% | 0.68% | 0.63% | -0.10% | 0.19% | 0.57% | |
| AUD | 0.61% | 1.05% | 0.79% | 0.77% | 0.10% | 0.26% | 0.68% | |
| NZD | 0.33% | 0.85% | 0.53% | 0.46% | -0.19% | -0.26% | 0.42% | |
| CHF | -0.08% | 0.43% | 0.11% | -0.01% | -0.57% | -0.68% | -0.42% |
The map showcases how major currencies are changing in relation to one another. You can look up the base currency in the left column and see its comparison with other currencies along the top row. For instance, to see the change rate of USD against JPY, you’d look at the box where the corresponding row and column meet.
The USD index saw a drop on Thursday but managed to limit its losses after positive economic data released in the US. The US Bureau of Economic Analysis revised its second-quarter GDP growth from 3.1% to 3.3%, and initial unemployment claims fell from 234,000 to 229,000. As of early Friday, the USD index showed a slight gain nearly hitting 98.00, even as US stock index futures dipped between 0.1% and 0.2%. There’s an expectation for core PCE inflation to rise from 2.8% in June to 2.9% in July.
Data from Germany indicated a 1.5% decline in retail sales month-over-month for July, which was worse than the anticipated 0.4% drop, following a rise of 1% in June. The annual CPI inflation in Germany stood at 2.1% for July. Following a 0.4% increase on Thursday, EUR/USD traded slightly above 1.1650 during European mornings.
USD/CAD fell to its lowest point in three weeks at around 1.3740 on Thursday. As Friday started, it faced challenges in gaining traction, hovering just above 1.3750, with Statistics Canada set to release second-quarter GDP data that same day.
The Japanese Finance Minister mentioned on Friday that they are aware of rising interest rates and will continue to engage with bond market participants to properly manage its debt policy. Recent data indicated Tokyo CPI rose by 2.6% in August after a 2.9% increase in July. Following a loss of 0.3% on Thursday, USD/JPY is trading slightly above 147.00 during the European session.
GBP/USD recorded gains for three consecutive days on Thursday, but lost momentum early Friday, trading slightly below 1.3500 by report time.
Gold experienced upward movement on Thursday, reaching its highest levels since late July, surpassing $3,420. Though it saw a dip during European mornings, it remains above the $3,400 mark.
Inflation FAQ
Inflation is a measure of how much prices are rising for a typical basket of goods and services. It’s usually expressed as month-over-month or year-over-year percentages. Core inflation excludes more volatile elements like food and fuel, which can swing due to various factors. Economists tend to focus on core inflation, especially since central banks target around 2% to maintain manageable inflation levels.
The Consumer Price Index (CPI) tracks price changes in goods and services over time. It’s typically shown as percentage changes on a monthly and yearly basis. Core CPI, which excludes volatile food and fuel prices, is a critical figure that central banks watch. If core CPI exceeds 2%, interest rates often rise; if it’s below, the opposite happens. Higher interest rates usually strengthen a currency, while lower inflation can weaken it.
This might seem puzzling, but higher inflation can actually lift a country’s currency value, and vice versa. Central banks often respond to rising inflation by raising interest rates, which attracts global investment looking for haven assets.
Typically, gold holds its value well, attracting investors seeking safety during high inflation periods. Yet, that’s not always the case, since rising inflation usually prompts central banks to increase interest rates, making gold less appealing. Conversely, lower inflation often favors gold as interest rates drop, enhancing its attractiveness as an investment.
