Forex Today: Gold climbs to new record-high, Euro recovers modestly after ECB-inspired drop
Here is what you need to know on Friday, October 18:
The US Dollar (USD) struggles to preserve its strength as risk mood improves on the last trading day of the week. Building Permits and Housing Starts data for September will be featured in the US economic docket on Friday. Several Federal Reserve (Fed) policymakers are scheduled to speak later in the American session.
The USD Index touched a new multi-month-high above 103.80 on Thursday before losing its traction. At the time of press, the index was down 0.15% on the day at around 103.60.
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 strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.90% | 0.07% | 0.60% | 0.20% | 0.55% | 0.66% | 1.11% | |
| EUR | -0.90% | -0.90% | -0.41% | -0.62% | -0.32% | -0.33% | 0.13% | |
| GBP | -0.07% | 0.90% | 0.49% | 0.15% | 0.61% | 0.59% | 0.99% | |
| JPY | -0.60% | 0.41% | -0.49% | -0.40% | -0.03% | 0.11% | 0.50% | |
| CAD | -0.20% | 0.62% | -0.15% | 0.40% | 0.30% | 0.47% | 0.73% | |
| AUD | -0.55% | 0.32% | -0.61% | 0.03% | -0.30% | 0.12% | 0.52% | |
| NZD | -0.66% | 0.33% | -0.59% | -0.11% | -0.47% | -0.12% | 0.38% | |
| CHF | -1.11% | -0.13% | -0.99% | -0.50% | -0.73% | -0.52% | -0.38% |
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).
Gold extended its weekly rally on Thursday and gained 0.7% on the day. XAU/USD continued to push higher during the Asian trading hours on Friday and reached a new all-time-high above $2,710 before retreating slightly.
The data from China showed earlier in the day that the Gross Domestic Product expanded at an annual rate of 4.6% in the third quarter, at a slightly stronger pace than the market expectation of 4.5%. On a yearly basis, Industrial Production expanded by 5.4% in September and Retail Sales rose by 3.2%. Both of these prints came in above analysts' estimates. Reflecting the risk-on environment, the Shanghai Composite Index is up more than 4% on the day.
Assessing the data releases, China's National Bureau of Statistics (NBS) noted that September economic indicators showed positive changes and added that the confidence is rising on achieving a GDP growth of about 5% in Q4. In the meantime, People's Bank of China (PBOC) Governor Pan Gongsheng said on Friday that they expect, depending on the market liquidity situation, that the reserve requirement ratio (RRR) could be further reduced by the end of the year.
The European Central Bank (ECB) announced on Thursday that it lowered key rates by 25 basis points (bps) following the October policy meeting. With this decision, the interest rate on the main refinancing operations, the interest rates on the marginal lending facility and the deposit facility stood at 3.4%, 3.65% and 3.25%, respectively.
The ECB reiterated in its policy statement it will continue to follow a data-dependent and meeting-by-meeting approach in determining the appropriate level and duration of restriction. In the post meeting press conference, ECB President Christine Lagarde noted that incoming data suggest that the economic activity in the Euro area is weaker than expected. Regarding the growth outlook, Lagarde said that they are still looking at a soft landing, not forecasting a recession. EUR/USD dropped to its lowest level since early August at 1.0811 following the ECB event on Thursday. Supported by the renewed US Dollar (USD) weakness, the pair trades in positive territory near 1.0850 early Friday.
Following a three-day slide, AUD/USD reversed its direction and rose nearly 0.5% on Thursday. The pair continues to edge higher early Friday and trades above 0.6700.
The UK's Office for National Statistics reported early Friday that Retail Sales rose 0.3% on a monthly basis in September. This reading followed the 1.% increase recorded in August and came in better than the market expectation for a decline of 0.3%. After suffering large losses midweek, GBP/USD registered small gains on Thursday and continued to climb higher early Friday. At the time of press, the pair was up 0.4% on the day at 1.3050.
The latest data from Japan showed that the National Consumer Price Index (CPI) rose 2.5% on a yearly basis in September, at a much softer pace than the 3% increase seen in August. After rising above 150.00 for the first time in over 10 weeks on Thursday, USD/JPY retreated below this level during the Asian trading hours on Friday as Japanese officials verbally intervened. Atsushi Mimura, Japan’s Vice Finance Minister For International Affairs and top foreign exchange official, said on Friday, he is “closely watching FX moves with a high sense of urgency.” Meanwhile, Bank of Japan (BoJ) Governor Kazuo Ueda said that they must be vigilant to market and FX moves and their impact on the economy and prices.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.