Forex News
- EUR/USD holds firm as the US-Iran peace deal reduces safe-haven demand for the US Dollar.
- Lower Oil prices improve the outlook for the energy-dependent Eurozone economy.
- Investors turn their focus to the Fed's interest rate decision on Wednesday.
EUR/USD holds firm on Monday as the US-Iran peace deal boosts risk appetite, reducing safe-haven demand for the US Dollar (USD). At the time of writing, the pair trades around 1.1598 after hitting an intraday high of 1.1662.
The US and Iran are expected to sign a final agreement on Friday, after both sides confirmed on Sunday that they had reached a framework deal to end the four-month-long war. The development has eased fears of prolonged disruptions to energy supplies through the Strait of Hormuz, a key route for global Oil shipments.
The prospect of the Strait reopening helped push Oil prices lower at the start of the week. Lower energy prices are also seen as positive for the Eurozone economy, which remains heavily dependent on imported energy, providing additional support for the Euro (EUR).
However, traders appear reluctant to place aggressive bullish bets on EUR/USD before the agreement is formally signed, as details of the MoU remain unclear and the situation remains fluid.
A sustained decline in Oil prices would ease inflation risks and reduce pressure on the European Central Bank (ECB) to tighten monetary policy further after last week's 25-basis-point rate increase.
ECB Governing Council member Martins Kazaks said the central bank still sees upside risks to inflation and is prepared to act again if needed. ECB policymaker Joachim Nagel said policy settings are "still broadly neutral" and warned that "second-round effects from energy" cannot be excluded. Nagel also said the ECB is "keeping all options open" for its July meeting.
Attention now turns to the Fed's interest rate decision on Wednesday. Traders have fully priced in a pause, with the focus firmly on forward guidance and how policymakers intend to bring inflation back to the central bank's 2% target.
US inflation accelerated to 4.2% in May, though core inflation remained relatively contained at 2.9%. At the same time, economic activity has shown resilience and the labor market has regained momentum in recent months.
Against this backdrop, the Fed can afford to remain patient before resuming rate cuts, a stance that could continue to support the US Dollar even as geopolitical tensions ease.
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.
- WTI falls to around $79.15, down 4.53% on Monday, after hitting its lowest level since March 10.
- Markets react to the announcement of a US-Iran agreement that paves the way for the reopening of the Strait of Hormuz.
- Comments from US and Iranian officials signal diplomatic progress, easing concerns about disruptions to global energy supplies.
West Texas Intermediate (WTI) US Oil is falling sharply on Monday and trades around $79.15 at the time of writing, down 4.53% on the day. Crude Oil has dropped to its lowest level since March 10 as investors unwind part of the geopolitical risk premium that had been built into prices following recent tensions between Washington and Tehran.
The decline comes after several statements suggested that a deal between the United States (US) and Iran is close to being finalized. US Vice President JD Vance told CNBC that authorities expect the Strait of Hormuz to remain “open toll-free in the long term,” while noting that several details still need to be resolved ahead of the planned signing later this week.
On the Iranian side, Foreign Ministry spokesperson Esmail Baghaei Hamaneh said that Tehran would take measures to ensure safe passage through the Strait of Hormuz in coordination with Oman and other countries. He also stated that the US would commit to granting Iran access to its frozen funds, while stressing that both sides would be expected to fulfill their obligations under the agreement.
The announced framework includes the gradual reopening of the Strait of Hormuz, a strategic waterway through which nearly 20% of global Oil supplies transit. The prospect of restored shipping flows has eased fears of prolonged disruptions to global energy markets, which had provided significant support to crude prices in recent weeks.
However, some analysts believe that a full normalization of Oil markets could take time. According to Reuters, Tamas Varga of PVM Oil Associates said that restoring Oil flows to pre-crisis levels could take several weeks or even months. In addition, damage to energy infrastructure across the Middle East may continue to constrain supply in the near term.
Investors are now focused on the next stages of negotiations between the United States and Iran and on the practical implementation of the Strait of Hormuz reopening, which could shape oil market dynamics in the weeks ahead.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
- US-Iran agreement boosts risk appetite, sending WTI sharply lower.
- Fed decision under Warsh may reset policy communication.
- Burnham by-election win could revive UK fiscal concerns.
The Pound Sterling (GBP) advances by 0.31% on Monday as risk appetite improves following an agreement reached between the US and Iran, which is expected to be signed on Friday in Geneva, Switzerland. Both parties announced the deal, a headwind for the US Dollar (USD), which has fared well amid geopolitical uncertainty and inflationary scenarios. At the time of writing, the GBP/USD pair trades at 1.3436.
GBP/USD gains as peace breakthrough pressures Dollar and crude
Financial markets cheered Washington and Tehran’s decision to end hostilities as US equity markets soared while Oil prices tanked, with WTI falling over 4.40%. The Greenback, which has been closely correlated with WTI, is down 0.28%, according to the US Dollar Index. The DXY, which measures the buck’s value against a basket of six peers, is at 99.52.
The agreement will open the Strait of Hormuz, and it’s said that the US Navy blockade of Iran will also be lifted, freeing one-fifth of the global total Oil production.
Last week’s US inflation data ─on the consumer and producer side─was still above the Federal Reserve’s (Fed) 2% goal, which could trigger some action by the central bank. Nevertheless, an end to the war could open the door to holding rates unchanged throughout the year, even as investors expected a rate hike last week.
On Wednesday, the Fed will announce its monetary policy decision, the first under Kevin Warsh's lead, followed by his press conference. Eyes will be on how he communicates, the balance sheet, and the stance he takes as he begins his four-year tenure at the central bank.
This week, the UK schedule will feature local elections, in which the main challenger to Prime Minister Keir Starmer, Andy Burnham, is expected to win the Makerfield by-election, which would secure his place in parliament.
In that outcome, uncertainty about Burnham’s fiscal plans might push Sterling lower amid speculation about additional spending, which would pressure the British Pound lower, as investors would demand a higher premium in the bond market.
Alongside elections, the release of inflation and jobs data will be crucial ahead of the Bank of England’s (BoE) monetary policy decision on Thursday, in which the central bank is expected to hold rates unchanged.
GBP/USD Price Forecast: Technical outlook
On the daily chart, GBP/USD trades at 1.3430, keeping a mildly bearish bias as it sits below the latest simple moving average cluster around 1.3472 while clinging to an underlying rising trend-line support drawn from the 1.3159 area. The Relative Strength Index (14) hovers just below the 50 line, suggesting neutral-to-soft momentum, which hints that any rebound attempts could remain capped unless the pair can reclaim the nearby moving average resistance and break above the overhanging downward trend-line structure.
On the topside, immediate resistance emerges at the simple moving average cluster near 1.3472, with the broader descending trend-line structure reinforcing a supply zone just overhead. On the downside, the rising trend-line from 1.3159 acts as the primary support area beneath spot, and a sustained break below this structural floor would likely open the door to a deeper pullback as sellers attempt to extend control in the near term.
(The technical analysis of this story was written with the help of an AI tool.)
Pound Sterling Price Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.27% | -0.18% | -0.03% | -0.05% | -0.49% | -0.05% | -0.43% | |
| EUR | 0.27% | 0.10% | 0.28% | 0.24% | -0.22% | 0.23% | -0.17% | |
| GBP | 0.18% | -0.10% | 0.15% | 0.14% | -0.33% | 0.16% | -0.26% | |
| JPY | 0.03% | -0.28% | -0.15% | -0.01% | -0.46% | -0.05% | -0.43% | |
| CAD | 0.05% | -0.24% | -0.14% | 0.00% | -0.44% | -0.03% | -0.41% | |
| AUD | 0.49% | 0.22% | 0.33% | 0.46% | 0.44% | 0.46% | 0.08% | |
| NZD | 0.05% | -0.23% | -0.16% | 0.05% | 0.03% | -0.46% | -0.41% | |
| CHF | 0.43% | 0.17% | 0.26% | 0.43% | 0.41% | -0.08% | 0.41% |
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 British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
- US Industrial Production missed expectations, rising only 0.1% MoM in May.
- BoJ is expected to raise rates to 1.00% on Tuesday.
- USD/JPY direction will depend heavily on the BoJ’s tone after the decision.
The USD/JPY pair trades with a cautious tone as investors digest softer United States (US) industrial activity data while positioning for the Bank of Japan’s (BoJ) interest rate decision due on Tuesday.
United States (US) Industrial Production rose 0.1% MoM in May, missing expectations of 0.3% and slowing sharply from the previous 0.9% increase. The weaker reading slightly limits support for the US Dollar (USD), as it points to softer momentum in the industrial sector.
This data directionally confirmed the NY Empire State Index for June, which gave a reading a 5.7 that below both the consensus of 14 and the May figure of 19.6.
Meanwhile, the Japanese Yen (JPY) remains focused on the BoJ as markets widely expect the central bank to raise its short-term policy rate from 0.75% to 1.00%, which would mark Japan’s highest rate in decades.
Short-term technical analysis:
On the 4-hour chart, USD/JPY trades at 160.07. The pair is sandwiched between its key moving averages, holding above the 100-period Simple Moving Average (SMA) at 159.78 but trading below the 20-period SMA at 160.29, which leaves the near-term tone neutral yet mildly capped on the topside. The Relative Strength Index (RSI) sits around 45, hinting at a loss of upside momentum without yet signaling oversold conditions, suggesting consolidation rather than an immediate directional break.
On the downside, initial support is seen at the horizontal level around 160.03, followed by 159.99 and 159.89, with the 100-period SMA reinforcing a deeper cushion near 159.78. On the topside, immediate resistance comes in at the horizontal barrier around 160.16, ahead of the 20-period SMA at 160.29; a sustained move above this cluster would be needed to reopen the path toward a more constructive bullish bias on USD/JPY.
(The technical analysis of this story was written with the help of an AI tool.)
- The New Zealand Dollar gains ground as easing tensions between the US and Iran improve market sentiment.
- The announced reopening of the Strait of Hormuz drives Oil prices lower and eases global inflation concerns.
- Investors now await the Federal Reserve’s monetary policy decision later this week.
NZD/USD trades around 0.5840 at the time of writing on Monday, up 0.17% on the day. The pair benefits from broad-based US Dollar (USD) weakness as markets welcome news of a framework agreement between the United States (US) and Iran aimed at ending the conflict between the two countries.
The improvement in risk sentiment follows comments from US President Donald Trump, who said that the Strait of Hormuz would be reopened as part of the agreement. Iranian authorities also confirmed the development, while officials from both sides indicated that a memorandum of understanding is expected to be signed in Switzerland on Friday. According to US media reports, the ceasefire that has been in place since April will be extended to allow further negotiations.
This geopolitical easing is weighing on the US Dollar. The US Dollar Index (DXY) starts the week on the defensive and falls toward the 99.50 area. At the same time, Crude Oil prices tumble, with West Texas Intermediate (WTI) declining by nearly 5% on the day as investors anticipate a normalization of global energy flows following the announced reopening of the Strait of Hormuz.
The New Zealand Dollar (NZD) remains resilient despite disappointing domestic economic data. The BusinessNZ Performance of Services Index fell to 47.5 in May from a revised 48.7 previously, marking a fourth consecutive month of contraction in the services sector. Meanwhile, the Composite Index declined to 48.4, its lowest level since June 2025, confirming a broader slowdown in New Zealand’s economy.
However, continued weakness in the Greenback is helping support NZD/USD. Investors believe that a less tense geopolitical environment could reduce energy-driven inflation risks, providing the Federal Reserve (Fed) with more room to maintain its current monetary policy on hold. Market participants are now turning their attention to the Fed’s meeting on Wednesday, focusing on updated economic projections and guidance regarding the future path of interest rates.
New Zealand Dollar Price Today
The table below shows the percentage change of New Zealand Dollar (NZD) against listed major currencies today. New Zealand Dollar was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.39% | -0.21% | -0.10% | -0.07% | -0.38% | -0.13% | -0.51% | |
| EUR | 0.39% | 0.17% | 0.30% | 0.32% | -0.00% | 0.27% | -0.14% | |
| GBP | 0.21% | -0.17% | 0.13% | 0.14% | -0.19% | 0.11% | -0.32% | |
| JPY | 0.10% | -0.30% | -0.13% | 0.04% | -0.30% | -0.06% | -0.45% | |
| CAD | 0.07% | -0.32% | -0.14% | -0.04% | -0.32% | -0.09% | -0.48% | |
| AUD | 0.38% | 0.00% | 0.19% | 0.30% | 0.32% | 0.27% | -0.11% | |
| NZD | 0.13% | -0.27% | -0.11% | 0.06% | 0.09% | -0.27% | -0.42% | |
| CHF | 0.51% | 0.14% | 0.32% | 0.45% | 0.48% | 0.11% | 0.42% |
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 New Zealand Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent NZD (base)/USD (quote).
- Gold climbs over 3% on Monday after the US and Iran announce an agreement on a framework deal to end the war.
- Falling Oil prices ease inflation concerns and reduce expectations of higher interest rates, supporting the non-yielding metal.
- Technically, XAU/USD trades below its 20-day SMA, but the RSI has recovered from oversold levels, suggesting selling pressure is easing.
Gold (XAU/USD) starts the week on a positive note, rising more than 3% after the United States (US) and Iran reached a framework agreement to end the war in the Middle East. At the time of writing, XAU/USD trades around $4,367, extending its recovery from a nearly seven-month low of $4,023 touched last week.
A memorandum of understanding (MoU) is expected to be signed in Switzerland on Friday. US President Donald Trump said in a Truth Social post on Sunday that "the deal with the Islamic Republic of Iran is now complete" and announced the immediate removal of the US naval blockade of Iranian ports, while Iran would reopen the Strait of Hormuz.
The deal has improved market mood and eased fears of further disruptions to global energy supplies, pushing the US Dollar (USD) and Oil prices lower. West Texas Intermediate (WTI) Crude Oil falls to its lowest level in nearly three months, trading around $79 per barrel at the time of writing.
The precious metal, traditionally viewed as a hedge against inflation and geopolitical uncertainty, has behaved more like an interest rate-sensitive asset since the outbreak of the US-Iran war, as soaring Oil prices fueled inflation concerns and reinforced expectations that the major central banks, including the Federal Reserve (Fed), would keep interest rates higher for longer.
As a result, Gold lost nearly 20% of its value during the war as markets started to price in the possibility of a Fed rate hike later this year. A higher interest-rate environment increases the opportunity cost of holding non-yielding assets.
With Washington and Tehran now moving toward a peace agreement and the Strait of Hormuz set to reopen, the decline in Oil prices is easing inflation concerns, leading traders to scale back rate-hike bets and helping the metal recover.
However, further gains in Gold could be limited as the final agreement between Washington and Tehran has yet to be formally signed. Meanwhile, the Fed is unlikely to signal a return to monetary policy easing anytime soon.
US inflation has more than doubled from the central bank's 2% target in the wake of the war, suggesting borrowing costs could remain elevated in the coming months even if energy prices continue to decline.
Traders now turn their attention to the Fed's monetary policy announcement on Wednesday. While the central bank is widely expected to keep interest rates unchanged, investors will closely watch the updated economic projections and comments from newly appointed Chair Kevin Warsh for clues on the future path of monetary policy, which could set the tone for Gold's next move.
Technical analysis: RSI rebounds from oversold territory
In the daily chart, XAU/USD remains under short-term pressure, holding below the Bollinger Band mid-line 20-day Simple Moving Average near $4,415, keeping the immediate bias tilted lower.
The Relative Strength Index (RSI) has recovered from oversold territory and is currently near 45, indicating that selling pressure has eased. However, the indicator remains below the 50 mark, suggesting the broader trend has yet to turn decisively bullish.
On the topside, initial resistance is located at the Bollinger midline (20-day SMA) around $4,415, with the upper Bollinger band near $4,682 acting as the next cap if buyers manage to extend a rebound.
On the downside, first support emerges at the lower Bollinger Band near $4,149, ahead of a more strategic horizontal floor around $4,000, which is likely to attract stronger buying interest.
(The technical analysis of this story was written with the help of an AI tool.)
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.
BNY’s Bob Savage emphasizes that, despite improved risk sentiment from geopolitical de-escalation, investors remain focused on central bank policy and global growth resilience. Markets are assessing ECB tightening, upcoming Fed and BoJ decisions and the prospect of higher-for-longer interest rates. China’s outlook is supported by external demand and stable ratings, yet equity outflows and defensive bond buying signal lingering caution.
Balancing optimism and caution
"Despite the positive geopolitical backdrop, investors remain focused on central bank policy, global growth trends and whether improving sentiment can overcome persistent concerns around inflation, rates and capital flows."
"Markets are continuing to assess the implications of ECB tightening, the upcoming Fed and BoJ decisions and the risk of higher-for-longer global interest rates."
"While China’s outlook remains supported by external demand and stable ratings, continued equity outflows and defensive bond buying highlight lingering concerns over global growth and market durability."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- The Swiss Franc gains as US-Iran peace deal reduces safe-haven demand for the US Dollar.
- Falling Oil prices prompt traders to reassess the Federal Reserve's policy outlook.
- The Fed and SNB monetary policy decisions later this week are in focus, with both central banks expected to leave interest rates unchanged.
The Swiss Franc (CHF) strengthens against the US Dollar (USD) on Monday as the Greenback's safe-haven demand fades following the United States and Iran's peace agreement aimed at ending the war in the Middle East. At the time of writing, USD/CHF trades around 0.7923, down 0.60% on the day.
Market sentiment has improved as the four-month conflict appears to be nearing an end, with a formal signing ceremony expected on Friday. Under the 60-day memorandum of understanding (MoU), the US will lift its blockade of Iranian ports, while Iran will reopen the Strait of Hormuz to commercial shipping.
Talks on Iran's nuclear program, sanctions relief and the release of frozen Iranian assets will continue during this period.
Following the latest developments, the US Dollar and Oil prices opened the week with a bearish gap. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 99.46, hovering near one-week lows.
Meanwhile, traders are reassessing the Federal Reserve's (Fed) monetary policy outlook as the pullback in Oil prices has reduced expectations that the US central bank may need to raise interest rates later this year.
Market attention now turns to the Fed's monetary policy announcement on Wednesday, where policymakers are widely expected to keep interest rates unchanged.
However, US inflation has accelerated sharply since the start of the war, rising to 4.2% in May, more than double the central bank's 2% target. As such, the Fed could signal that interest rates will remain elevated for an extended period as officials remain committed to bringing inflation back to target.
Meanwhile, the inflationary impact of higher Oil prices has been largely limited in Switzerland. Inflation remains near the lower end of the Swiss National Bank's (SNB) 0%-2% target range, reinforcing expectations that the central bank will maintain its current policy settings.
The SNB is widely expected to keep interest rates unchanged at 0% at its monetary policy decision on Thursday. A Reuters poll released on Monday found that all 28 economists surveyed expect the SNB to leave interest rates unchanged this year. Only four respondents forecast one or two quarter-point rate hikes in 2027.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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