Forex News
On Wednesday, the People’s Bank of China (PBOC) set the USD/CNY central rate for the trading session ahead at 7.1668 as compared to the previous day's fix of 7.1656 and 7.1709 Reuters estimate.
PBOC FAQs
The primary monetary policy objectives of the People's Bank of China (PBoC) are to safeguard price stability, including exchange rate stability, and promote economic growth. China’s central bank also aims to implement financial reforms, such as opening and developing the financial market.
The PBoC is owned by the state of the People's Republic of China (PRC), so it is not considered an autonomous institution. The Chinese Communist Party (CCP) Committee Secretary, nominated by the Chairman of the State Council, has a key influence on the PBoC’s management and direction, not the governor. However, Mr. Pan Gongsheng currently holds both of these posts.
Unlike the Western economies, the PBoC uses a broader set of monetary policy instruments to achieve its objectives. The primary tools include a seven-day Reverse Repo Rate (RRR), Medium-term Lending Facility (MLF), foreign exchange interventions and Reserve Requirement Ratio (RRR). However, The Loan Prime Rate (LPR) is China’s benchmark interest rate. Changes to the LPR directly influence the rates that need to be paid in the market for loans and mortgages and the interest paid on savings. By changing the LPR, China’s central bank can also influence the exchange rates of the Chinese Renminbi.
Yes, China has 19 private banks – a small fraction of the financial system. The largest private banks are digital lenders WeBank and MYbank, which are backed by tech giants Tencent and Ant Group, per The Straits Times. In 2014, China allowed domestic lenders fully capitalized by private funds to operate in the state-dominated financial sector.
- Gold price loses traction to around $3,325 in Wednesday’s early Asian session.
- The Iran-Israel ceasefire weighs on safe-haven assets like Gold.
- Fed’s Powell said US central bank should not hurry to adjust policy.
The Gold price (XAU/USD) edges lower to near $3,325 during the early Asian session on Wednesday. The precious metal loses ground due to the de-escalation of tensions in the Middle East. Traders brace for the Federal Reserve’s (Fed) Chair Jerome Powell testifies later on Wednesday.
The yellow metal retreats from recent highs after news of the ceasefire between Israel and Iran. A truce between both countries came into effect following four waves of Iranian attacks on Israeli-occupied territories.
"The de-escalation of tensions in the Middle East is the primary factor that's weighing on gold. The safe-haven bid has diminished, and the market is in more of a risk-on mode," said Peter Grant, vice president and senior metals strategist at Zaner Metals.
Kansas City Fed President Jeff Schmid said on Wednesday the US central bank has time to study tariff effects on inflation before any rate decision. Schmid’s comments suggest he’s in no rush to lower borrowing costs, echoing what Fed Chair Jerome Powell said earlier Tuesday
Fed Chair Powell reiterated his stance that policymakers should not hurry to adjust policy, saying that the US central bank will continue to wait and see how the economy evolves before deciding whether to reduce its key interest rate. Less dovish remarks from the Fed Chair might help limit the Gold’s losses in the near term.
Money markets have fully priced in two Fed reductions by the end of 2025, with a first move in September far more likely than next month, though expectation of a July reduction rises from last week.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Federal Reserve Bank of Kansas City President Jeff Schmid said early Wednesday that the Fed should wait to see how tariffs and other policies impact the economy before adjusting interest rates, per Bloomberg.
Key quotes
With all this uncertainty, the current posture of monetary policy, which has been characterized as ‘wait-and-see,’ is appropriate.
The resilience of the economy gives us the time to observe how prices and the economy develop.
“Certainly, with the inflation of the past couple of years still in people’s minds, I will be carefully watching the monthly price data for signs of broad-based price increases that might further challenge an already fragile price-setting psychology.
Market reaction
The US Dollar Index (DXY) is trading 0.07% lower on the day at 97.90, as of writing.
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.
The Bank of Japan (BoJ) published the Summary of Opinions from the June monetary policy meeting, with the key findings noted below.
Key quotes
One member said: While much of the hard data for April and May has been relatively solid, it is likely that the effects of tariff policies are yet to materialize.
One member said while the impact of U.S. tariff policy will certainly exert downward pressure on firms’ sentiment, the bank needs to take some time to examine the magnitude of the impact on the real economy.
One member said despite the impact of U.S. tariff policy, many firms will likely continue to raise wages to address labor shortages, make high levels of business fixed investment.
One member said although the direct impact of U.S. tariff policy has not been observed so far, Japan’s economy has been somewhat stagnant.
One member said Japan’s economy at crossroads between making a transition to a “growth-oriented economy driven by wage increases and investment” and falling into stagflation.
One member said although uncertainty regarding trade policies remains extremely high, on the domestic front, wage developments have been solid, and the CPI has been slightly higher than expected.
One member said as the price of rice could affect perceived inflation and inflation expectations, it is necessary to closely monitor developments in rice prices.
One member said as US, Europe and emerging economies leaning toward accommodative policies, Japan’s economy could unexpectedly be pushed up or experience inflationary pressure.
One member said if its outlook for economic activity and prices will be realized, the bank, in accordance with improvement in economic activity and prices, will continue to raise the policy interest rate.
One member said given high uncertainty, the bank should, at this point, maintain accommodative financial conditions with the current interest rate level and thereby firmly support the economy.
One member said even though prices have been somewhat higher than expected, it is appropriate for the Bank to maintain current policy, given downside risks stemming from U.S. tariff policy and situation in the Middle East.
One member said with extremely high uncertainty in the outlook, it is appropriate for the Bank to maintain the current policy interest rate for the time being.
One member said increased volatility in the super-long-term zone may spill over to the entire yield curve, thereby spreading unintended tightening effects to the market as a whole.
One member said situation of government bond markets around the world has been a major topic of discussion, such as at international meetings, attention is warranted on the possibility that developments overseas will spread to Japan.
One member said although the CPI has been higher than expected, the pass-through of higher wages to services prices seems to have plateaued.
One member said with inflation being at levels higher than expected, the bank may face a situation where it should adjust the degree of monetary accommodation decisively, even when there is high uncertainty.
Market reaction
Following the BoJ’s Summary of Opinions, the USD/JPY pair is down 0.03% on the day to trade at 144.90 as of writing.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
A US intelligence report suggested that US strikes over the weekend on Iranian nuclear facilities have set back Tehran's program by only a matter of months and it was not “completely and fully obliterated” as US President Donald Trump has said, three sources with knowledge of the matter told Reuters.
Iranian Foreign Minister Abbas Araghchi said that the country's nuclear program continues, per the local news agency Al Arabiya.
Market reaction
At the time of writing, the West Texas Intermediate (WTI) is trading 0.05% lower on the day to trade at $64.70. The Gold price (XAU/USD) is trading 0.02% lower on the day to trade at $3,322.
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.
- USD/CAD posts modest losses around 1.3725 in Wednesday’s early Asian session.
- Fed’s Powell said central bank will continue to wait and see how the economy evolves before deciding whether to cut its rate.
- Canada CPI inflation remained unchanged at 1.7% YoY in May as expected.
The USD/CAD pair trades with mild losses near 1.3725 during the early Asian session on Wednesday. The US Dollar (USD) weakens against the Canadian Dollar (CAD) amid easing Middle East tensions. Investors will keep an eye on Federal Reserve (Fed) Chair Jerome Powell testifies later on Wednesday.
Investors bet that a delicate ceasefire between Israel and Iran will hold. A ceasefire between Iran and Israel begins following four waves of Iranian attacks on Israeli-occupied territories. US President Donald Trump said on Tuesday a ceasefire was now in place and asked both countries not to violate it. Easing tensions in the Middle East and risk-on sentiment could weigh on the Greenback in the near term.
Fed Chair Powell reiterated his stance that policymakers should not hurry to adjust policy, contradicting recent comments from Fed Governors Christopher Waller and Michelle Bowman, who said that the two would be open to lowering rates as soon as July. Money markets have fully priced in two Fed reductions by the end of 2025, with a first move in September far more likely than next month, though expectations of a July reduction rise from last week.
Data released by Statistics Canada on Tuesday showed that the country’s Consumer Price Index (CPI) rose 1.7% on a yearly basis in May versus 1.7% prior. This reading aligned with market expectations. On a monthly basis, the CPI rose 0.6% in May, compared to a 0.1% decline reported in April. This reading surpassed the market expectation of 0.5%.
Meanwhile, the extended decline in Crude Oil prices might undermine the commodity-linked Loonie and cap the downside for the pair. It’s worth noting that Canada is the largest oil exporter to the US, and lower crude oil prices tend to have a negative impact on the CAD value.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
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