Here’s what you need to know on Friday, December 19:
the US Dollar (USD) I managed to hold out early on Friday and Japanese Yen (JPY) The Euro is still holding its ground against its rivals after the Bank of Japan (BoJ) decided to raise policy by 25 basis points to 0.75%. The economic calendar will contain mid-level data releases from the UK, Germany and the US before the weekend.
US dollar price this week
The table below shows the percentage change in the US Dollar (USD) against the major currencies listed this week. The US dollar was the weakest against the Swiss franc.
| US dollars | euro | GBP | JPY | Canadian | Australian dollar | New Zealand dollar | Swiss franc | |
|---|---|---|---|---|---|---|---|---|
| US dollars | 0.15% | 0.00% | 0.08% | 0.13% | 0.58% | 0.62% | -0.15% | |
| euro | -0.15% | -0.14% | -0.09% | -0.03% | 0.45% | 0.47% | -0.32% | |
| GBP | -0.01% | 0.14% | 0.19% | 0.13% | 0.60% | 0.61% | -0.17% | |
| JPY | -0.08% | 0.09% | -0.19% | 0.05% | 0.50% | 0.52% | -0.04% | |
| Canadian | -0.13% | 0.03% | -0.13% | -0.05% | 0.46% | 0.49% | -0.15% | |
| Australian dollar | -0.58% | -0.45% | -0.60% | -0.50% | -0.46% | 0.02% | -0.77% | |
| New Zealand dollar | -0.62% | -0.47% | -0.61% | -0.52% | -0.49% | -0.02% | -0.78% | |
| Swiss franc | 0.15% | 0.32% | 0.17% | 0.04% | 0.15% | 0.77% | 0.78% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen from the top row. For example, if you select USD 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 Bank of England cut interest rates by 25 basis points to 3.75% following the December meeting, by a narrow majority of 5 to 4. Bank of England Governor Andrew Bailey’s vote in favor of the cut became the deciding factor. In the policy statement, the Bank of England reiterated its belief that interest rates remain on a gradual downward path, but indicated that judgments on further policy easing will become a closer call in the near future. After rising towards 1.3450 with the initial reaction to the Bank of England, GBP/USD It reversed its trend in the US session on Thursday and closed the day slightly higher. The pair remains in a consolidation phase early Friday and is trading below the 1.3400 level. The UK Office for National Statistics will publish retail sales data for November later in the session.
The U.S. Bureau of Labor Statistics (BLS) reported Thursday that annual inflation, as measured by the Consumer Price Index (CPI), fell to 2.7% in November, while core CPI inflation fell to 2.6% in the same period. Both readings came in below analyst estimates and caused the US dollar to come under downward pressure. However, the cautious mood in the market helped the US dollar find support US dollar index Recorded small daily gains. In the European morning on Friday, the US dollar index settled at around 98.50. Other data from the US showed that weekly initial jobless claims fell to 224,000 from 237,000 in the week ending December 15. On Friday, existing home sales data for November and the final revision to the University of Michigan Consumer Confidence Index data for December will be released.
The European Central Bank left key interest rates unchanged after its final policy meeting of the year, as was widely expected. In the press conference following the meeting, ECB President Christine Lagarde reiterated that the eurozone economy remained resilient and said they could not provide future policy guidance, given the uncertainty surrounding the outlook. Lagarde also noted that they are not targeting exchange rates but added that they are paying close attention to the appreciation of the euro. EUR/USD It closed in negative territory after a volatile second half on Thursday but managed to stabilize above 1.1700 early on Friday. The European economic calendar will present consumer confidence and producer inflation data from Germany.
Board members of the Bank of Japan decided to raise the short-term interest rate by 25 basis points to 0.75% from 0.50% after the conclusion of the two-day monetary policy review meeting on Friday. The Bank of Japan reiterated that it will continue to raise interest rates if the economy and prices move in line with expectations, based on improvement in the economy. Regarding the assessment of the Japanese yen, the Bank of Japan said it should be alert to risks, including developments in foreign exchange markets. USD/JPY It rises to about 156.00 at the beginning of the European session on Friday and achieves gains of about 0.3% during the day.
gold The pair surged higher and came within striking distance of a new all-time high on Thursday, but lost momentum later in the US session. After correcting towards $4,300 during Asian trading hours on Friday, the XAU/USD pair found a foothold and rebounded above $4,320 by European morning.
(This story was corrected on 19 December at 07:36 to say the Bank of England cut interest rates to 3.75% following the December meeting, not 3.7%).
Frequently asked questions for central banks
Central banks have the main task of ensuring that prices in a country or region are stable. Economies constantly experience inflation or deflation when the prices of certain goods and services fluctuate. A continuous rise in prices for the same goods means inflation, and a continuous fall in prices for the same goods means deflation. It is the responsibility of the central bank to maintain demand by adjusting the interest rate. For the largest central banks such as the US Federal Reserve (Fed), the European Central Bank (ECB), or the Bank of England (BoE), the mandate is to keep inflation near 2%.
The central bank has one important tool at its disposal to raise or lower inflation, and that is by adjusting its benchmark interest rate, known as the cash rate. At the moments announced in advance, the central bank will issue a statement on its interest rate and provide additional reasons as to why it will remain or change (lower or raise). Local banks will adjust their savings and lending rates accordingly, which will make it harder or easier for people to earn their savings or for companies to get loans and make investments in their businesses. When a central bank raises interest rates significantly, this is called monetary tightening. When the benchmark interest rate is lowered, it is called monetary easing.
The central bank is often politically independent. Members of the central bank’s policy board go through a series of committees and hearings before being appointed to a policy board seat. Each member of this board often has a certain conviction about how the central bank should control inflation and subsequent monetary policy. Members who want very loose monetary policy, with low interest rates and cheap lending, to boost the economy significantly while being content to see inflation just above 2%, are called “doves.” Members who want to see higher interest rates to reward savings and want to keep inflation down at all times are called “hawks” and will not rest until inflation reaches 2% or just below.
Typically, there is a chair or chair who presides over each meeting, needs to create consensus among the hawks or doves, and has the final say when it comes to dividing the votes to avoid a 50-50 tie on whether the current policy should be amended. The Chairman will often make live follow-up speeches, communicating the current cash position and outlook. The central bank will try to push its monetary policy forward without causing violent fluctuations in interest rates, stocks, or its currency. All central bank members will direct their stance towards the markets before the policy meeting. A few days before the policy meeting and until the new policy is announced, members are prohibited from speaking publicly. This is called a blackout period.
