Market Update – May 23
Here’s what you should know today:
The US Dollar (USD) is facing challenges maintaining its strength against other currencies as it revealed a slight gain on Thursday. The European Central Bank (ECB) is set to release wage rate data for the first quarter. In the U.S., the only economic data scheduled for release today is April’s new home sales. As the weekend approaches, investors will be keenly observing remarks from central bank officials.
This week’s US Dollar Price
The table below outlines the fluctuations of the US Dollar (USD) against various currencies this week, highlighting that the USD has been the weakest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.34% | -1.44% | -1.33% | -1.13% | -0.74% | -1.00% | -1.27% | |
| EUR | 1.34% | -0.12% | 0.05% | 0.27% | 0.73% | 0.40% | 0.07% | |
| GBP | 1.44% | 0.12% | -0.12% | 0.40% | 0.85% | 0.53% | 0.20% | |
| JPY | 1.33% | -0.05% | 0.12% | 0.22% | 0.77% | 0.54% | 0.12% | |
| CAD | 1.13% | -0.40% | -0.22% | 0.40% | 0.13% | -0.20% | ||
| AUD | 0.74% | -0.73% | -0.85% | -0.77% | -0.40% | -0.32% | -0.64% | |
| NZD | 1.00% | -0.40% | -0.53% | -0.54% | -0.13% | 0.32% | -0.33% | |
| CHF | 1.27% | -0.07% | -0.20% | -0.12% | 0.20% | 0.64% | 0.33% |
The table provides insight into current currency dynamics, with the US dollar performing poorly against others during the week. It’s interesting how market forces shift so quickly.
In political news, the tax and spending bill proposed by President Trump cleared the Republican-majority House with a narrow margin. The Senate plans to start discussions after the holiday on May 26th, aiming for a vote by July 4th. Additionally, on Thursday, the yield on benchmark 10-year U.S. Treasury bonds dropped over 1%, reaching around 4.5%.
Regarding the USD index, it hovers around 99.50, still in the negative range despite a small profit on Thursday. Meanwhile, recent data from S&P Global indicates a rise in private sector economic activity in the U.S. in May, with the Composite Purchasing Managers Index (PMI) climbing from 50.6 in April to 52.1. Stock index futures in the U.S. are seeing modest movement during the early European session.
Currency Updates
EUR/USD
The pair is benefiting from the USD’s current weaknesses, trading comfortably above 1.1300 this Friday.
GBP/USD
This currency pair is gaining bullish momentum and trading at its highest level since February 2022, nearing 1.3500.
USD/JPY
The USD remains somewhat weak, trending down towards 143.00 this morning. Japanese Prime Minister has reiterated that Japan’s position on U.S. tariffs remains unchanged, demanding their removal. Moreover, it’s reported that Japanese Economic Minister Lyosei Akazawa is set to visit the U.S. around May 30th to speak on related issues.
After a dip, gold is starting to recover, trading around $3,330, reflecting a 1% increase today. It’s fascinating to see how commodity prices react to market shifts.
US Dollar FAQ
The US dollar (USD) serves as the official currency of the United States and is also widely used in various other countries alongside local currencies. In 2022, it became the most traded currency globally, accounting for over 88% of forex transactions, averaging $6.6 trillion daily. After World War II, the USD effectively replaced the British pound as the global reserve currency. Historically, it was backed by gold, but this changed with the Bretton Woods Agreement in 1971, leading to the removal of the gold standard.
The primary influence on the value of the USD is the monetary policy set by the Federal Reserve. This institution focuses on two main objectives: ensuring price stability (controlling inflation) and fostering full employment. The main lever for achieving these goals is interest rates. When inflation rises above the Fed’s 2% target, interest rates often get increased, leading to a stronger USD. Conversely, if inflation dips or unemployment remains high, lower interest rates can put downward pressure on the dollar.
In extreme circumstances, the Fed might resort to printing more money through quantitative easing (QE), a process that significantly boosts lending in financial systems during tight credit periods. This measure might weaken the dollar as it injects more money into the economy. This tactic was notably used in response to the 2008 financial crisis.
On the flip side, quantitative tightening (QT) is where the Fed halts bond purchases and refrains from reinvesting in maturing bonds. This typically has a positive impact on the dollar’s strength.
