Forex Today: US Dollar holds ground, markets await comments from Fed officials and US data

Here is what you need to know on Tuesday, September 29:

The US Dollar (USD) stays resilient against its major rivals following Monday's subdued action. In the second half of the day, Consumer Confidence Index for September and JOLTS Job Openings data for August will be featured in the US economic calendar. Additionally, several Federal Reserve (Fed) policymakers are scheduled to deliver speeches.

US Dollar Price Last 7 Days

The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the strongest against the Australian Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.90%	0.94%	0.16%	1.06%	1.82%	1.11%	1.47%
EUR	-0.90%		0.06%	-0.84%	0.13%	0.92%	0.22%	0.57%
GBP	-0.94%	-0.06%		-0.88%	0.09%	0.83%	0.20%	0.50%
JPY	-0.16%	0.84%	0.88%		0.97%	1.72%	1.05%	1.36%
CAD	-1.06%	-0.13%	-0.09%	-0.97%		0.75%	0.09%	0.40%
AUD	-1.82%	-0.92%	-0.83%	-1.72%	-0.75%		-0.69%	-0.36%
NZD	-1.11%	-0.22%	-0.20%	-1.05%	-0.09%	0.69%		0.33%
CHF	-1.47%	-0.57%	-0.50%	-1.36%	-0.40%	0.36%	-0.33%

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).

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

In the absence of high-impact data releases, the USD started the week on a firm footing. Growing expectations for a Fed rate hike in October and a lack of progress in resolving the conflict in the Middle East helped the currency remain supported. Early Wednesday, the USD Index clings to small gains above 101.20, while the US stock index futures trade marginally lower. Late Monday, US President Donald Trump rejected news reports claiming that his administration offered Iran access to frozen funds and a sanctions relief, as reported by Al Jazeera. Meanwhile, Iranian Foreign Minister Abbas Araghchi said that they held additional indirect talks with the US through mediators and that they expect a formal response from Washington "hopefully" on Tuesday.

UD Dollar support seen increasingly tied to stock market performance

Analysts at Commerzbank argue that the structure of US capital inflows is shifting in a way that makes currency support more sensitive to equity market dynamics. They note that “capital inflows – and thus support for the US Dollar – will be more heavily dependent on the performance of the US economy and, consequently, the US stock market.” In their view, the “US stock market is thus not only responsible for refinancing the US current account deficit but has also become the primary driver of US households’ net worth – and therefore, likely, of private consumption as well,” underscoring how closely Dollar resilience is now linked to equity valuations and household balance sheets.

During the Asian session on Tuesday, the Reserve Bank of Australia (RBA) announced that it raised the policy rate by 25 basis points (bps) tp 4.6% from 4.35%. This decision came in line with analysts' estimate. Although AUD/USD edged higher with the initial reaction, it lost its traction and was last seen losing about 0.35% on the day, slightly below 0.7000.

Audience shrugs as RBA’s hawkish tone fails to lift the Aussie

According to Commerzbank, the Reserve Bank of Australia not only delivered its latest rate hike but “made an effort in its communication to sound as hawkish as possible.” However, Commerzbank notes that the market reaction was fleeting, as “the AUD initially reacted positively to the decision but quickly gave up those small gains,” underscoring investor caution despite the RBA’s firm rhetoric.

Gold came under heavy selling pressure to start the week and lost nearly 4% on Monday, touching its lowest level since early August in the process. After coming in within a touching distance of $4,100, the precious metal corrects higher and recovers toward $4,150 in the European morning on Tuesday.

EUR/USD closed in negative territory on Monday, pressured by the broad USD strength. The pair stays relatively quiet on Tuesday and fluctuates in a tight channel above 1.1350. Later in the session, the European economic calendar will feature business and consumer sentiment data for September. Several European Central Bank (ECB) policymakers, including President Christine Lagarde, will deliver speeches in the second half of the day.

GBP/USD managed to post marginal gains on Monday but failed to gather recovery momentum. In the European morning, the pair trades in the red below 1.3250.

USD/JPY failed to make a decisive move in either direction on Monday and ended the day virtually unchanged. The pair extends its sideways grind near 157.50 early Tuesday.

Central banks FAQs

What does a central bank do?

Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

What does a central bank do when inflation undershoots or overshoots its projected target?

A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.

Who decides on monetary policy and interest rates?

A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.

Is there a president or head of a central bank?

Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.

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