Key Updates for Friday, August 15th
The US Dollar (USD) is facing challenges in maintaining its strength after experiencing gains against its main competitors on Thursday. Today’s economic calendar for the US includes reports on retail sales and industrial production data for July. Additionally, later in the session, the University of Michigan is set to release a preliminary survey on consumer sentiment for August, focusing on consumer confidence and one-year inflation expectations.
As we approach the weekend, investors are closely monitoring news regarding the highly anticipated meeting between President Donald Trump and President Vladimir Putin of Russia.
On Thursday, the USD gained momentum after a report showed that annual producer inflation, measured via the producer price index (PPI), rose from 2.4% in June to 3.3%. Core PPI also increased significantly, from 2.6% to 3.7% year-over-year.
In the Asian session on Friday, data from China indicated that retail sales grew by 3.7% year-on-year in July, falling short of market expectations of 4.6%. Meanwhile, industrial production rose by 5.7%, down from 6.8% in the previous month. After a decline of nearly 0.8% on Thursday, the AUD/USD rebounded early Friday and stabilized just above 0.6500.
The USD/JPY pair, after closing slightly higher on Thursday, is now under pressure and trading around 147.00. Japan’s GDP saw an annual growth rate of 1% in the second quarter, exceeding the market forecast of 0.4%, following a 0.6% rise in the last quarter.
EUR/USD remains positive, hovering above 1.1650 after a decline on Thursday. There are no major economic data releases from Europe expected to impact the market today.
After strong gains earlier in the week, GBP/USD lost some ground, falling more than 0.3% on Thursday. During the European session on Friday, the pair is fluctuating just above 1.3550.
Gold prices slipped by over 0.5% on Thursday as US Treasury bond yields rose following the producer inflation data. XAU/USD has shown stability, trading below $3,350 in the early hours on Friday.
US Dollar FAQ
The US dollar (USD) is the official currency of the United States and is used in various other countries alongside local currencies. In 2022, it was the most commonly traded currency in the world, making up over 88% of global forex trading, averaging around $6.6 trillion daily. After World War II, the USD became the global reserve currency, taking over from the British pound, and the dollar’s gold backing ceased with the Bretton Woods Agreement in 1971.
The most crucial factor influencing the USD’s value is the monetary policy determined by the Federal Reserve. The Fed aims for price stability (controlling inflation) and full employment. Interest rates are the primary tool for achieving these goals. When inflation rises beyond the Fed’s target of 2%, they typically raise interest rates to strengthen the dollar. Conversely, if inflation drops below this target or unemployment spikes, they may lower rates, which can weaken the currency.
In rare situations, the Federal Reserve might opt to increase dollar circulation through quantitative easing (QE), a strategy to enhance credit flow in the financial system when credit availability is strained. This was notably used during the 2008 financial crisis, involving the purchase of US government bonds using printed dollars. Generally, such measures tend to devalue the US dollar.
Conversely, quantitative tightening (QT) involves the Fed halting bond purchases and not reinvesting from matured bonds, which usually has a positive effect on the dollar’s value.
