Key Updates for December 17th
On this Wednesday morning, the U.S. dollar (USD) remained steady as the markets paused to evaluate the Federal Reserve’s stance post-jobs report. Traders in Europe are now turning their attention to the UK’s inflation data for November, especially with the Bank of England (BoE) set to announce its policy tomorrow.
USD Performance This Week
The table below details how the USD has fared against other major currencies this week, revealing it as the weakest against the Japanese yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.08% | -0.06% | -0.45% | 0.03% | 0.43% | 0.40% | 0.05% | |
| EUR | -0.08% | -0.14% | -0.55% | -0.06% | 0.37% | 0.32% | -0.02% | |
| GBP | 0.06% | 0.14% | -0.27% | 0.08% | 0.51% | 0.46% | 0.09% | |
| JPY | 0.45% | 0.55% | 0.27% | 0.49% | 0.89% | 0.84% | 0.70% | |
| CAD | -0.03% | 0.06% | -0.08% | -0.49% | 0.41% | 0.38% | 0.13% | |
| AUD | -0.43% | -0.37% | -0.51% | -0.89% | -0.41% | -0.05% | -0.40% | |
| NZD | -0.40% | -0.32% | -0.46% | -0.84% | -0.38% | 0.05% | -0.37% | |
| CHF | -0.05% | 0.02% | -0.09% | -0.70% | -0.13% | 0.40% | 0.37% |
This chart illustrates the fluctuations between major currencies, using the left column as the base currency and the top row for the quote currency. For instance, selecting USD against the JPY shows the resulting change in the box.
Recently, the U.S. Bureau of Labor Statistics (BLS) disclosed its initial employment report since the government’s reopening. It indicated a decrease of 105,000 jobs in October, followed by an increase of 64,000 in November. The unemployment rate ticked up from 4.4% to 4.6% in November, while wage inflation edged down from 3.7% to 3.5%. The USD index started off below 98.00, hitting its lowest point since early October but managed to recover some losses later. By early Wednesday, it climbed toward 98.50. Several Federal Reserve officials are slated to speak today.
After experiencing a rise of over 0.3% on Tuesday, GBP/USD shifted gears early Wednesday and dropped below 1.3400. Analysts expect the UK’s annual inflation rate, based on the consumer price index (CPI), to ease to 3.5% in November from 3.6% in October.
The euro/USD pair saw a rise above 1.1800 on Tuesday, the first time since late September, but that upward momentum appears to have waned. It corrected downwards during the European morning on Wednesday, trading below 1.1750. Also, keep an eye out for the upcoming release of German IFO business sentiment data and revised inflation statistics for November from Eurostat. Notably, the European Central Bank (ECB) will unveil its interest rate decisions and updated macroeconomic forecasts tomorrow.
The USD/JPY pair rebounded after two consecutive days of decline, currently up 0.3% around 155.15.
In the commodity sector, gold had a bit of a rebound early Wednesday after struggling to gain momentum previously, closing the day up approximately 0.7% near $4,330.
Frequently Asked Questions About Inflation
Inflation reflects the increase in prices of a selected basket of goods and services. It’s usually reported as a percentage change on a monthly and yearly basis. Headline inflation includes all items, while core inflation strips away the more volatile items like food and energy, focusing instead on what economists pay attention to, typically targeted around 2% by central banks.
The Consumer Price Index (CPI) tracks the shift in price of a basket of goods and services over time, also expressed as percentage changes. Core CPI, which excludes fluctuating food and fuel prices, is often a target for central banks. If it rises above 2%, interest rates generally increase and vice versa. Higher interest rates boost the currency’s value, making it generally favorable in an inflationary environment.
It might seem paradoxical, but often when a country’s inflation rate climbs, its currency’s value can increase too, as central banks are likely to hike interest rates, attracting investors searching for good returns.
Traditionally, gold has been a go-to asset during inflationary times as it tends to hold its value. However, this has shifted somewhat; now, when inflation spikes, central banks might raise interest rates, which can diminish the appeal of gold. Conversely, lower inflation can make gold a more attractive investment as it leads to lower interest rates.
