Financial markets extend the holiday mood into the first trading day of the new year. Markets continue to play the waiting game for the data-driven week ahead.
The US Dollar Index (DXY) is trading near the 98.40 price area on Friday, paring a significant portion of its losses in the new year.
US dollar price today
The table below shows the percentage change in the US Dollar (USD) against the major currencies listed today. The US dollar was the strongest against the Canadian dollar.
| US dollars | euro | GBP | JPY | Canadian | Australian dollar | New Zealand dollar | Swiss franc | |
|---|---|---|---|---|---|---|---|---|
| US dollars | -0.02% | -0.19% | -0.16% | 0.03% | -0.18% | -0.28% | -0.36% | |
| euro | 0.02% | -0.21% | -0.04% | 0.15% | -0.11% | -0.15% | -0.24% | |
| GBP | 0.19% | 0.21% | 0.15% | 0.32% | 0.09% | 0.05% | -0.03% | |
| JPY | 0.16% | 0.04% | -0.15% | 0.09% | -0.15% | -0.17% | -0.19% | |
| Canadian | -0.03% | -0.15% | -0.32% | -0.09% | -0.25% | -0.27% | -0.39% | |
| Australian dollar | 0.18% | 0.11% | -0.09% | 0.15% | 0.25% | -0.04% | -0.12% | |
| New Zealand dollar | 0.28% | 0.15% | -0.05% | 0.17% | 0.27% | 0.04% | -0.08% | |
| Swiss franc | 0.36% | 0.24% | 0.03% | 0.19% | 0.39% | 0.12% | 0.08% |
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).
Gold (XAU/USD) is trading around $4,320, losing all its intraday gains after the New Year holiday. Market expectations of lower US interest rates and escalating geopolitical tensions have boosted precious metals over the past few sessions.
The EUR/USD pair is hovering around the 1.1740 area after declining in the first half of the week. The pair is still under pressure awaiting the upcoming data.
The GBP/USD pair is trading near the 1.3480 price area, little changed in the first US session of the year.
The USD/JPY pair is trading near the 156.50 price area, in negative territory, with little change during the day.
The AUD/USD pair is trading near the 0.6690 area, recording a slight advance after paring nearly half of its intraday gains on Friday.
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.
Key Economic Data: Upcoming releases to shape market sentiment
Over the coming days, investors will focus on US employment data and global inflation numbers, as they influence central banks’ decisions.
The US Institute for Supply Management (ISM) will publish its December manufacturing Purchasing Managers’ Index (PMI) on Monday.
The German Harmonized Index of Consumer Prices (HICP) and the Australian Consumer Price Index (CPI) will be released on Tuesday.
The US ADP employment report (December) and the ISM Services PMI (December) will be released on Wednesday, along with the Eurozone HICP (lead-up to December).
The US Trade Balance (October) and Consumer Credit (November) will be released next Thursday.
Finally, the US December Nonfarm Payrolls report and the preliminary estimate of the Michigan Consumer Confidence Index for January will be released on January 9.
