Forex Today: BoJ maintains status quo, focus shifts to Fed
Here is what you need to know on Wednesday, March 19:
Investors opt to remain on the sidelines while waiting for the Federal Reserve (Fed) to announce monetary policy decisions following the March meeting. The US central bank will also publish the revised Summary of Economic Projections (SEP), the so-called dot plot.
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 weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.45% | -0.33% | 0.69% | -0.50% | -0.42% | -1.17% | -0.91% | |
| EUR | 0.45% | 0.00% | 0.72% | -0.05% | -0.10% | -0.73% | -0.47% | |
| GBP | 0.33% | -0.00% | 1.05% | -0.26% | -0.12% | -0.74% | -0.54% | |
| JPY | -0.69% | -0.72% | -1.05% | -1.19% | -1.31% | -1.79% | -1.73% | |
| CAD | 0.50% | 0.05% | 0.26% | 1.19% | -0.13% | -0.66% | -0.94% | |
| AUD | 0.42% | 0.10% | 0.12% | 1.31% | 0.13% | -0.59% | -0.35% | |
| NZD | 1.17% | 0.73% | 0.74% | 1.79% | 0.66% | 0.59% | 0.26% | |
| CHF | 0.91% | 0.47% | 0.54% | 1.73% | 0.94% | 0.35% | -0.26% |
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) failed to benefit from the risk-averse market atmosphere on Tuesday, and the USD Index closed the third consecutive day in negative territory. Early Wednesday, the index moves sideways, slightly below 103.50. Meanwhile, US stock index futures trade marginally higher after Wall Street's main indexes suffered large losses on Tuesday. The Fed is widely expected to leave the interest rate unchanged at 4.25%-4.5%. Market participants will scrutinize the revised inflation and growth projections, and pay close attention to comments from Chairman Jerome Powell in the post-meeting press conference starting at 18:30 GMT.
During the Asian trading hours on Wednesday, the Bank of Japan (BoJ) announced that it maintained the short-term interest rate in the range of 0.40%- 0.50% after concluding its two-day monetary policy review meeting, as anticipated. BoJ Governor Kazua Ueda said that they will keep adjusting the degree of monetary easing and added that the underlying inflation is still below 2%. USD/JPY gains traction in the European morning and trades at a fresh two-week high near 150.00.
Gold benefited from escalating geopolitical tensions and gained more than 1% on Tuesday. XAU/USD continues to stretch higher early Wednesday and was last seen trading at a fresh record-high above $3,040.
EUR/USD posted daily gains on Tuesday and touched its highest level since early October above 1.0950. The pair stays in a consolidation phase but manages to hold comfortably above 1.0900 in the European morning. Later in the session, Eurostat will release revisions to February inflation data. Several European Central Bank (ECB) policymakers are scheduled to deliver speeches as well.
GBP/USD corrects lower and trades below 1.3000 after closing marginally higher on Tuesday. The Bank of England will announce monetary policy decisions on Thursday.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.