Forex News
Danske Research Team highlights that Euro area April flash PMIs (Purchasing Managers' Index) are a key input ahead of the next European Central Bank (ECB) meeting, with Manufacturing PMI expected to drop below 50 while Services PMI holds at 50.2. The bank notes unusually high uncertainty around the indices and stresses that price components will be crucial. In markets, EUR/USD has slipped back below 1.1700.
Euro PMIs and weaker currency tone
"In the euro area, the April flash PMI report is released, a key input ahead of the ECB meeting. We expect the manufacturing PMI to show a steep decline from 51.6 to 49.6, driven by higher energy prices."
"The surprise increase in the headline index in March was largely due to longer delivery times, which pose an upward risk to the headline number again. As such, monitoring the output sub-component will be crucial."
"The services PMI fell more than expected in March to 50.2 and we expect it to remain at same level in April, as services are less directly hit than manufacturing. However, the uncertainty of the index is unusually high, so interpretation should be more cautious than usual."
"Markets open on a weak foot with headlines from a locked-in stand-off over the SOH [Strait of Hormuz] dominating the news. Asian equities are down while US treasuries rise a couple of basis points this morning and EUR/USD falls back below 1.1700."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- USD/CAD holds steady near 1.3670 in Thursday’s early European session.
- Trump extended the ceasefire and vowed to continue the US blockade on Iranian ports.
- Traders brace for the preliminary reading of the S&P Global US PMI report for April, which is due on Thursday.
The USD/CAD pair trades on a flat note around 1.3670 during the early European session on Thursday. The pair steadies as traders await signs of diplomatic progress to end the war in the Middle East.
The US is extending the ceasefire with Iran at Pakistan’s request as US President Donald Trump waits for a unified proposal from Iran. Nonetheless, tensions remain high in the Middle East as Tehran keeps a tight grip on the Strait of Hormuz, controlling passage through the trade route and firing on ships.
Iran’s top negotiator and parliament speaker, Mohammad Bagher Ghalibaf, stated Israel’s warmongering and “flagrant” ceasefire breaches made reopening the Strait of Hormuz "impossible." Surging oil prices, driven by Middle East conflict risks, lift the commodity-linked Loonie. It is worth noting that Canada is a major oil-exporting country, and high crude oil prices generally have a positive impact on the Canadian Dollar (CAD).
The preliminary reading of the S&P Global US Purchasing Managers Index (PMI) will be the highlight later on Thursday. The Manufacturing PMI figure is expected to improve slightly to 52.5 in April from 52.3 in the previous reading. Services PMI is projected to rise to 50.0 in April, versus 49.8 prior. If the reports show a stronger-than-expected outcome, this could underpin the Greenback against the CAD in the near term.
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.
- The Indian Rupee falls further against the US Dollar due to rising oil prices.
- FIIs remain net sellers for three trading days in a row.
- India’s Composite PMI has come in higher at 58.3 in April from 57.0 in March.
The Indian Rupee (INR) extends its losing streak for the fourth trading day against the US Dollar (USD) on Thursday. The USD/INR pair jumps to near 94.15, the highest level seen in over a week, as higher oil prices due to the closure of the Strait of Hormuz, a critical passage to almost 20% of global energy supply, continue to keep the Indian Rupee under pressure.
During the press time, the WTI Oil price is up over 1.5% above $93.50. Theoretically, currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, underperform in a high oil price environment.
Energy flows through Hormuz remain suspended for indefinite period
While United States (US) President Donald Trump has announced a ceasefire extension with Iran until Washington receives a unified proposal from Tehran, the oil price remains high due to the Hormuz closure.
Iran maintains its vow that it won’t reopen the Strait of Hormuz until the US removes the blockade on Iranian sea ports, a move that was taken to freeze Iranian business activity and cripple the economy. Iranian military groups near the Hormuz continue to attack ships aiming to pass through the Hormuz.
According to a report from The Wall Street Journal (WSJ), Iranian media said the Islamic Revolutionary Guard Corps (IRGC) fired on three ships in the Strait of Hormuz and escorted two of them to Iranian waters, and is bringing those ships to Iran.
FIIs remain net sellers for third trading day
Foreign investors continue offloading their stake from the Indian stock market after a brief pause in the April 15-17 period, when they bought shares worth Rs. 1,731.71 crore. So far this week, Foreign Institutional Investors (FIIs) have pared their stake worth Rs. 5,057.28 crore.
It seems that fears of lower India Inc. earnings projections by market experts in the wake of higher oil prices are impacting the sentiment of overseas investors towards the Indian stock market.
On the economic data front, India’s preliminary HSBC Composite Purchasing Managers’ Index (PMI) data for April has come in stronger compared to its previous readings. The Composite PMI arrives at 58.3, higher than 57.0 in March. The Manufacturing and the Services PMI expanded at a faster pace to 55.9 and 57.9, respectively.
Higher US Dollar also supports USD/INR
Rising oil prices due to the Hormuz closure have improved the appeal of the US Dollar, assuming that elevating energy prices would prompt US inflation expectations, a scenario that boosts hawkish Federal Reserve (Fed) bets.
Later in the day, investors will focus on the flash US S&P Global PMI data for April, which will be published at 13:45 GMT.
Technical Analysis: USD/INR gains for fourth straight trading day
USD/INR trades higher at around 94.15 as of writing. The pair holds a bullish near-term bias as spot remains above the 20-day Exponential Moving Average (EMA) at 93.2609, keeping the recent rebound intact after bouncing off the low-92 area earlier in the month.
The Relative Strength Index (RSI) at 58.45 stays below overbought territory yet leans to the upside, suggesting buyers retain control but without extreme momentum.
On the downside, initial support is seen at the 20-day EMA around 93.26, where a break would signal fading bullish pressure and open the door to a deeper correction toward 93.00, followed by the March 3 high at 92.46. On the topside, the pair seems on track to revisit the all-time high above 95.00.
(The technical analysis of this story was written with the help of an AI tool.)
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
German/ Eurozone flash PMIs Overview
The preliminary German and Eurozone flash HCOB Purchasing Managers’ Index (PMI) data for April is due for release today at 07:30 and 08:00 GMT, respectively.
Amongst the Euro area economies, the German and the composite Eurozone PMI reports hold more relevance, in terms of their impact on the European currency and the related markets as well.
The flash Composite PMI for Germany is expected to have expanded again, but at a moderate pace due to a slowdown in both the manufacturing and the services sectors. The Composite PMI is seen arriving lower at 51.1 from 51.9 in March.
Germany’s Manufacturing PMI is expected to have fallen to 51.3 from the previous reading of 52.2. Meanwhile, the Services PMI is estimated to have dropped to 50.3 from the prior release of 50.9.
The forecast for the Eurozone flash Composite PMI for April also shows that the overall private sector output expanded at a moderate pace. Eurozone’s manufacturing output growth slowed down, and the services sector activity contracted. A figure below the 50.0 threshold is considered a contraction in the economic activity.
According to preliminary estimates, the Eurozone Composite PMI drops to 50.2 from 50.7 in March. The Manufacturing PMI is seen arriving lower at 50.8 from the prior release of 51.6. The Services PMI is expected to have contracted to 49.8 after slowing down to 50.2 in March.
How could German/ Eurozone flash PMIs affect EUR/USD?
EUR/USD is marginally down to near 1.1700 during the early European trade on Thursday. The pair has corrected to near the 20-period exponential moving average (EMA), which is at 1.1691, but sits north of the 38.2% Fibonacci retracement at 1.1666 of the 1.1408–1.2082 swing, suggesting underlying demand on shallow pullbacks.
The Relative Strength Index (RSI) falls into the 40.00-60.00 zone after failing to hold above the 60.00 level, indicating balanced momentum with an upside bias.
On the topside, initial resistance is located at the 50% Fibonacci retracement at 1.1745; a daily close above this barrier would expose the 61.8% retracement at 1.1825, followed by 1.1938 and the cycle high region near 1.2082. On the downside, immediate support is provided by the 20-period EMA at 1.1691, ahead of the 38.2% retracement at 1.1666; a deeper setback would bring the 23.6% level at 1.1567 into view, with more important structural support down at the 1.1408 swing low.
(The technical analysis of this story was written with the help of an AI tool.)
Economic Indicator
HCOB Composite PMI
The Composite Purchasing Managers Index (PMI), released on a monthly basis by S&P Global and Hamburg Commercial Bank (HCOB), is a leading indicator gauging private-business activity in Germany for both the manufacturing and services sectors. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the German private economy is generally expanding, a bullish sign for the Euro (EUR). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for EUR.
Read more.Next release: Thu Apr 23, 2026 07:30 (Prel)
Frequency: Monthly
Consensus: 51.1
Previous: 51.9
Source: S&P Global
- Gold meets with a fresh supply on Thursday as Hormuz risks continue to underpin the USD.
- Inflation concerns fuel less dovish Fed bets and further weigh on the non-yielding bullion.
- The fundamental backdrop favors bearish traders and backs the case for deeper losses.
Gold (XAU/USD) sticks to intraday losses through the Asian session on Thursday, albeit it continues to show some resilience below the $4,700 mark. The US Dollar (USD) gains positive traction for the third straight day as signs of friction between the US and Iran remained due to the American naval blockade of Iranian ports. Furthermore, a standoff over the Strait of Hormuz and dimming hopes for more rate cuts by the US Federal Reserve (Fed) act as a tailwind for the Greenback, exerting some pressure on the non-yielding yellow metal.
US President Donald Trump announced a temporary extension of the Iran ceasefire on Tuesday, just hours before it was set to expire. Investors, however, remain skeptical about a durable de-escalation amid the lack of progress in peace talks and rising tensions over the Strait of Hormuz. Trump had said that the US Navy blockade of Iranian ports will continue, while Iran has set the removal of the US naval blockade as a strict precondition for resuming negotiations. Furthermore, the Islamic Revolutionary Guard Corps (IRGC) said that it had captured two container ships on Wednesday, its first seizures since its war with the US and Israel began in February. This raises the risk of a further escalation of tensions and keeps geopolitical risks in play, underpinning the USD's reserve currency status.
Meanwhile, continued disruptions to energy supplies through the strategic waterway remain supportive of elevated Crude Oil prices, which has led to a significant surge in global inflation. This, in turn, fuels speculation about a more hawkish stance from major central banks, including the Fed. Although Fed officials projected one rate cut by the end of this year, sticky inflation and resilient economic activity have increased the threshold for a reduction in borrowing costs. This might force the Fed to adopt a wait-and-see approach, which turns out to be another factor supporting the USD and contributes to driving flows away from the non-interest-bearing Gold. The XAU/USD bears now await acceptance below the $4,700 mark before placing fresh bets and positioning for a further depreciation.
XAU/USD 4-hour chart
Gold seems vulnerable near $4,700; break below ascending channel support awaited
The XAU/USD pair currently sits near the lower boundary of an upward-sloping parallel channel, showing a broadly neutral near-term tone. The Relative Strength Index (RSI) hovers near 39, leaning toward the lower end of its range and hinting at fading bullish momentum but not yet in oversold conditions. The Moving Average Convergence Divergence (MACD) indicator remains in negative territory, reinforcing that upside attempts may struggle until momentum improves.
Meanwhile, a convincing break below the trend-channel support around $4,691 would expose the prior structural base near $4,568 and pave the way for deeper losses if selling accelerates. On the topside, bulls would need a sustained break above the channel resistance at roughly $4,926 to revive the broader uptrend and open the way for additional gains.
(The technical analysis of this story was written with the help of an AI tool.)
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.03% | 0.07% | 0.05% | 0.00% | 0.18% | 0.31% | 0.11% | |
| EUR | -0.03% | 0.07% | 0.00% | -0.02% | 0.13% | 0.29% | 0.06% | |
| GBP | -0.07% | -0.07% | -0.02% | -0.09% | 0.09% | 0.24% | -0.00% | |
| JPY | -0.05% | 0.00% | 0.02% | -0.05% | 0.14% | 0.24% | 0.05% | |
| CAD | -0.01% | 0.02% | 0.09% | 0.05% | 0.19% | 0.31% | 0.09% | |
| AUD | -0.18% | -0.13% | -0.09% | -0.14% | -0.19% | 0.15% | -0.10% | |
| NZD | -0.31% | -0.29% | -0.24% | -0.24% | -0.31% | -0.15% | -0.24% | |
| CHF | -0.11% | -0.06% | 0.00% | -0.05% | -0.09% | 0.10% | 0.24% |
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).
- EUR/GBP posts modest gains near 0.8675 in Thursday’s early European session.
- The UK CPI inflation climbed to 3.3%YoY in March, driven by higher fuel costs due to the Iran war.
- ECB's Simkus said the central bank shouldn't raise interest rates in April.
The EUR/GBP cross trades with mild gains around 0.8675 during the early European session on Thursday. However, the potential upside for the cross might be limited due to hot UK inflation data. Traders will keep an eye on the preliminary readings of the Purchasing Managers Index (PMI) from the Eurozone and the United Kingdom (UK).
Data released by the Office for National Statistics (ONS) on Wednesday showed that the UK headline Consumer Price Index (CPI) inflation rose to 3.3% YoY in March, compared to 3.0% in February. This increase marks the first official reflection of the US-Israel war with Iran on the UK's cost of living. The core CPI, excluding volatile food and energy items, climbed 3.1% YoY in March, versus 3.2% prior, below the forecast of 3.2%.
The Bank of England (BoE) is expected to hold the base rate at 3.75% at its next meeting on April 30, though the jump in inflation has fueled speculation of potential future hikes or delayed cuts.
The European Central Bank (ECB) officials are leaning toward leaving interest rates unchanged at the April policy meeting. ECB Governing Council member Martins Kazaks said on Wednesday that the central bank has ‘luxury’ to wait on interest rate rises.
Meanwhile, ECB policymaker Gediminas Simkus reiterated the cautious stance regarding the ECB's monetary policy, saying that while a rate hike in April is unlikely, the door remains open for policy tightening later this year. While a hold is expected in the April policy meeting, Barclays analysts anticipate the focus to shift toward potential 25 basis point (bps) hikes in June and September to combat an energy-driven inflation surge.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
- Iran fired on three ships in the Strait of Hormuz, escorting two into Iranian waters on Wednesday.
- US oil and petroleum products exports rose to a record 12.88 million bpd as Asia and Europe boosted purchases.
- EIA Crude Oil Stocks Change showed US inventories rose 1.925M barrels, versus expectations for a 1.2M-barrel draw.
West Texas Intermediate (WTI) oil price gains ground for the third consecutive day, trading around $93.00 per barrel during Asian hours on Thursday. Crude oil prices advance amid rising supply concerns on ongoing Middle East uncertainty and the blockade of the Strait of Hormuz.
According to the Wall Street Journal, Iran fired on three ships in the Strait of Hormuz and escorted two of them into Iranian waters on Wednesday. Iranian media reported that the paramilitary Revolutionary Guard was moving the vessels to Iran, marking a further escalation, although White House press secretary Karoline Leavitt said the seizures did not breach the terms of the ceasefire.
Iranian parliament speaker and chief negotiator Mohammad Bagher Ghalibaf stated that reopening the strait would be “impossible” while the United States (US) and Israel persist with what he described as “flagrant” ceasefire violations, including the US naval blockade. Meanwhile, President Donald Trump said the current truce would remain in place indefinitely as Washington awaits a renewed peace proposal from Tehran.
US crude oil and petroleum product exports rose by 137,000 barrels per day (bpd) to a record 12.88 million bpd as buyers in Asia and Europe increased purchases following supply disruptions linked to the Iran war, per Reuters.
The Energy Information Administration (EIA) Crude Oil Stocks Change showed on Wednesday that US oil inventories increased by 1.925 million barrels, against expectations for a 1.2 million-barrel draw.
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.
- USD/IDR scales higher for the third straight day amid economic concerns due to Middle East tensions.
- The USD benefits from safe-haven flows and less dovish Fed bets, further providing a boost to the pair.
- Comments from the BI Deputy Governor and Chief Economic Minister fail to provide any respite to the IDR.
The USD/IDR pair gains strong follow-through positive traction for the third successive day and rallies beyond the 17,300 level, hitting a fresh all-time peak during the Asian session on Thursday.
The Indonesian Rupiah (IDR) ranks among the worst-performing emerging Asian currencies this month and continues to underperform amid economic risks stemming from elevated Middle East tensions. Furthermore, the US-Iran standoff over the Strait of Hormuz remains supportive of elevated Crude Oil prices, fueling concerns about rising inflationary pressures and Indonesia's trade balance. Furthermore, the risk-off impulse is driving capital towards safe-haven assets, like the US Dollar (USD), and contributing to the USD/IDR pair's strong move higher.
Thomas Djiwandono, Deputy Governor of Bank Indonesia (BI), said that the IDR depreciation is caused by rising global uncertainty and reiterated the central bank's efforts to strengthen the interest rate structure to attract foreign inflows. Thomas added that the BI will continue increasing the intensity of intervention to stabilise the domestic currency. Moreover, Chief Economic Minister, Airlangga Hartarto, said on Thursday that the economic growth in the first quarter is expected to reach around 5.5% on the back of holiday spending and government stimulus. This, however, fails to provide any respite to the IDR.
The USD, on the other hand, benefits from persistent geopolitical uncertainties and expectations of a less dovish Federal Reserve (Fed) amid still sticky inflation and resilient economic activity. Meanwhile, the initial optimism led by a temporary extension of the US-Iran ceasefire fades rather quickly amid the lack of progress in peace talks . This, in turn, tempers investors' appetite for riskier assets, which further underpins the Greenback's safe-haven status and contributes to the USD/IDR pair's move up. The fundamental backdrop favors bullish traders, though extremely overbought conditions warrant some caution.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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