Forex News
- Silver falls due to rising expectations of a hawkish Federal Reserve stance.
- Fed officials are abandoning rate cuts and considering hikes if inflation fails to cool.
- Traders remain cautious over inflation risks and interest rate outlooks amid ongoing US-Iran peace negotiations.
Silver price (XAG/USD) declines after two days of gains, trading around $76.10 per troy ounce during the Asian hours on Friday. The non-yielding white metal struggles amid rising odds of hawkish sentiment surrounding the Federal Reserve (Fed) policy stance.
Elevated energy prices linked to the Strait of Hormuz threaten to feed into core US consumer prices and inflation expectations, which could potentially push the Fed to keep interest rates higher. Furthermore, a stronger US economic growth outlook is adding weight to the case for monetary tightening and putting pressure on non-interest-bearing assets, including Silver.
Fed officials remain cautious as they evaluate whether to adjust short-term interest rates. While they are currently holding the federal funds rate steady, policymakers are moving away from the idea of rate cuts and are increasingly open to raising rates if inflation fails to cool down.
US-Iran peace negotiations kept investors cautious over inflation risks and the outlook for interest rates. US Secretary of State Marco Rubio noted there were some encouraging signs surrounding a possible deal with Iran, adding that Pakistani mediators are expected to visit Tehran while Iranian officials review Washington’s latest proposal.
Meanwhile, senior Iranian officials clarified that no deal has been officially reached with the United States, but they acknowledged that the gaps between the two nations have narrowed. However, according to Reuters, the Islamic Republic’s Supreme Leader, Mojtaba Khamenei, stated that Iran’s uranium enrichment and Tehran’s control over the Strait of Hormuz remain major sticking points in the negotiations.
Iran is reportedly negotiating with Oman to implement a permanent toll system to formalize its authority over shipping traffic in the Strait of Hormuz, a proposal that President Donald Trump has firmly rejected.
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
- The Swiss Franc ranges around 0.7870 vs. the US Dollar, with investors awaiting US-Iran deal confirmation.
- The issues regarding the handover of uranium enrichment by Iran to the US and the authority on Hormuz remain unsolved.
- Flash US S&P Global Manufacturing PMI surprisingly expanded at a faster pace to 55.3 in May.
The Swiss Franc trades flat against the US Dollar (USD) around 0.7870 during the Asian trading session on Friday. The USD/CHF pair consolidates as investors await the confirmation of a prolonged peace deal between the United States (US) and Iran, following the announcement that both sides have reached a “final draft” with mediation from Pakistan.
As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades marginally higher to near 99.27.
On Thursday, market sentiment turned favorable for riskier assets after the Iranian Labour News Agency (ILNA) reported that a final draft between Washington and Tehran has been reached and a deal can be announced within next few hours.
However, Iran still seems not ready to surrender its enriched uranium and wants recognition of its authority on the Strait of Hormuz, Reuters reports.
On the economic data, front preliminary S&P Global Composite PMI data for May has come in steady at 51.7 as an unexpected strong growth in the manufacturing sector activity offsets the impact of moderate expansion in the Services PMI.
In the Swiss economy, investors seek fresh cues regarding whether the Swiss National Bank (SNB) will call for an exit from its dovish monetary policy stance due to rising global inflationary pressures amid elevated oil prices.
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.
- EUR/JPY tests the nine-day EMA of 184.76.
- The 14-day Relative Strength Index around 47 indicates recent pullback is a consolidation.
- Failing to break the wedge could push the spot down toward its three-month low near 181.87.
EUR/JPY remains flat for the second consecutive day, trading around 184.70 during the Asian hours on Friday. The technical analysis of the daily chart indicates the currency cross is positioned on the upper boundary of an emerging descending wedge pattern, indicating a potential for a bullish reversal.
However, the EUR/JPY cross is holding beneath both the nine-period and 50-period Exponential Moving Average (EMA), keeping the near-term bias capped despite the broader uptrend. The 14-day Relative Strength Index (RSI) sits around 47, pointing to neutral momentum and suggesting the recent pullback is consolidating rather than impulsive for now.
The immediate resistance lies at the confluence around nine-day EMA of 184.76, followed by the 50-day EMA at 184.85 and the upper boundary of the descending wedge. A successful break above this zone would support the EUR/JPY cross to explore the region around the all-time high of 187.95, which was recorded on April 17.
A failure to break the descending wedge would put downward pressure on the EUR/JPY cross to navigate the region around the three-month low of 181.87, recorded on March 16, followed by a five-month low of 180.81, which was reached on February 12.
(The technical analysis of this story was written with the help of an AI tool.)
Euro Price Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.08% | 0.06% | 0.03% | 0.11% | 0.21% | 0.08% | 0.06% | |
| EUR | -0.08% | -0.02% | -0.04% | 0.02% | 0.15% | 0.00% | -0.04% | |
| GBP | -0.06% | 0.02% | -0.04% | 0.05% | 0.15% | 0.03% | -0.03% | |
| JPY | -0.03% | 0.04% | 0.04% | 0.09% | 0.17% | 0.04% | -0.01% | |
| CAD | -0.11% | -0.02% | -0.05% | -0.09% | 0.08% | -0.05% | -0.08% | |
| AUD | -0.21% | -0.15% | -0.15% | -0.17% | -0.08% | -0.13% | -0.19% | |
| NZD | -0.08% | -0.01% | -0.03% | -0.04% | 0.05% | 0.13% | -0.05% | |
| CHF | -0.06% | 0.04% | 0.03% | 0.00% | 0.08% | 0.19% | 0.05% |
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 Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
- AUD/USD softens to around 0.7140 in Friday’s Asian session.
- Traders will closely monitor the Middle East developments, especially the US-Iran peace deal.
- Australia’s Unemployment Rate climbed to the highest in about four and half years, with markets slashing chance of RBA rate hikes.
The AUD/USD pair loses ground to near 0.7140 during the Asian trading hours on Friday. The Australian Dollar (AUD) weakens against the US Dollar (USD) as a rise in Australia’s jobless rate will give the Australian central bank more reason to delay another interest rate hike at the June meeting. The Michigan Consumer Sentiment Index report is due later on Friday.
Australia’s Unemployment Rate jumped to 4.5% in April to reach the highest level since late 2021. The surprise rise in this figure will provide the Reserve Bank of Australia (RBA) with more reason to hold off on a fourth rate hike at its next meeting in June, as financial markets slashed the chance of more interest rate rises this year. Swaps showed an 11.7% odds of a hike at the RBA's next meeting in June.
Traders weigh the likelihood of a near-term deal to end the Middle East war. Iranian officials said on Thursday that no deal has been reached with the US, but gaps have been narrowed. Nonetheless, the Islamic Republic’s Supreme Leader, Mojtaba Khamenei, stated that Iran’s uranium enrichment and Tehran’s control over the Strait of Hormuz remain among the sticking points.
Meanwhile, Marco Rubio stated that there are "some good signs" that a deal to end the Iran war could be in sight but added that he doesn't "want to be overly optimistic”.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
- GBP/USD struggles to gain any meaningful traction on Friday amid mixed fundamental cues.
- UK political uncertainty counters BoE rate hike bets and keeps the GBP bulls on the defensive.
- Geopolitical risks and hawkish Fed expectations underpin the USD, keeping a lid on the pair.
The GBP/USD pair is seen oscillating in a narrow trading band during the Asian session on Friday, though it remains on track to register modest weekly gains. Spot prices remain capped near the 100-day Exponential Moving Average (EMA) and currently trade around the 1.3425-1.3430 region, nearly unchanged for the day.
The British Pound (GBP) has been struggling to attract any meaningful buyers amid mixed signals over the Bank of England's (BoE) policy outlook and the UK political uncertainty. In fact, Swati Dhingra, an external MPC member, said that the BoE might not need to raise rates if its "scenario B" - where higher energy prices have only moderate second-round effects - materialises. In contrast, fellow external member Catherine Mann warned that high inflation in late 2026 could become embedded in wage deals for 2027.
Meanwhile, BoE Governor Andrew Bailey said on Wednesday that a rise in market interest rates since the start of the Iran war has given the central bank more time to assess the economic impact of the conflict. Nevertheless, markets are still pricing in the possibility of at least one interest rate hike by the BoE in 2026. The GBP bulls, however, seem hesitant amid serious leadership challenges to UK Prime Minister Keir Starmer. This, along with a bullish US Dollar (USD), contributes to keeping a lid on the GBP/USD pair.
Despite the incoming positive headlines, investors remain skeptical about a US-Iran peace deal amid major disagreements over Tehran's nuclear program and a standoff over the critical Strait of Hormuz. In fact, the Islamic Republic’s Supreme Leader, Mojtaba Khamenei, stated that Iran’s uranium enrichment and Tehran’s control over the strategic waterway remain major sticking points in the negotiations. This, along with hawkish US Federal Reserve (Fed) expectations, underpin the USD and cap the GBP/USD pair.
Minutes from the April 28–29 FOMC meeting released on Wednesday revealed that a majority policymakers believe that policy firming would likely become appropriate if inflation continued to run persistently above the 2% target. Traders were quick to react and are now pricing in around a 60% chance that the US central bank will raise borrowing costs by the year-end. This, in turn, assists the USD in preserving its recent strong gains to a six-week high and warrants some caution for the GBP/USD bulls.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.10% | -0.76% | 0.21% | 0.29% | 0.17% | -0.46% | 0.05% | |
| EUR | -0.10% | -0.87% | 0.18% | 0.17% | 0.05% | -0.49% | -0.07% | |
| GBP | 0.76% | 0.87% | 1.00% | 1.05% | 0.93% | 0.38% | 0.78% | |
| JPY | -0.21% | -0.18% | -1.00% | 0.03% | -0.11% | -0.72% | -0.19% | |
| CAD | -0.29% | -0.17% | -1.05% | -0.03% | -0.13% | -0.75% | -0.27% | |
| AUD | -0.17% | -0.05% | -0.93% | 0.11% | 0.13% | -0.55% | -0.06% | |
| NZD | 0.46% | 0.49% | -0.38% | 0.72% | 0.75% | 0.55% | 0.40% | |
| CHF | -0.05% | 0.07% | -0.78% | 0.19% | 0.27% | 0.06% | -0.40% |
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/USD falls as a firm US Dollar gained support from rising expectations of a hawkish Federal Reserve stance.
- President Trump will swear in Kevin Warsh as the US Federal Reserve chair on Friday at the White House.
- The Euro fell as flash PMI data showed the Euro Area economy shrinking at its fastest pace since late 2023.
EUR/USD remains subdued for the second successive day, trading around 1.1610 during the Asian hours on Friday. The pair depreciates as the US Dollar (USD) remains firm, supported by rising odds of hawkish sentiment surrounding the Federal Reserve (Fed) policy stance.
Prolonged energy disruptions from the ongoing war threaten to feed into core US consumer prices and inflation expectations, which could potentially push the Fed to keep interest rates higher. Furthermore, a stronger US economic growth outlook is adding weight to the case for monetary tightening and boosting the Greenback.
Fed officials remain cautious as they evaluate whether to adjust short-term interest rates. While they are currently holding the federal funds rate steady, policymakers are moving away from the idea of rate cuts and are increasingly open to raising rates if inflation fails to cool down.
The administration of US President Donald Trump announced that Trump will swear in Kevin Warsh as the chair of the US Federal Reserve on Friday at the White House. The new chair succeeds Jerome Powell, whose term expired on Friday but who has continued to serve on a pro-tempore basis until the transition.
On the US data front, the Department of Labor (DOL) showed that Initial Jobless Claims fell by 3,000 to 209,000 during the second week of May, indicating continued resilience in the labor market. Meanwhile, Continuing Jobless Claims increased to 1,782,000 for the week ending May 9, up from 1,776,000 the previous week.
The Euro (EUR) struggles against the US Dollar (USD) as traders reacted to a surprising contraction in the Eurozone economy. According to the latest S&P Global flash PMI data release on Thursday, the Euro Area economy shrank in May at its fastest pace since late 2023, driven by a conflict-fueled surge in living costs that stifled service demand and pushed input price inflation to a three-year high.
Market attention now shifts to upcoming German economic indicators, including the June GfK Consumer Confidence Survey, Q1 GDP figures, and the IFO Business Survey.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro 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 then its currency will gain in value 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.
- Silver drifts lower during the Asian session on Friday, snapping a two-day winning streak.
- The broader technical setup warrants caution before positioning for any meaningful gains.
- A sustained strength beyond the 100-period EMA on H4 would negate the negative bias.
Silver (XAG/USD) struggle to make it through the 23.6% Fibonacci retracement level of the recent fall from the monthly swing high and attracts some sellers during the Asian session on Friday. The white metal, for now, seems to have snapped a two-day winning streak, though it manages to hold above the $76.00 mark.
Looking at the broader picture, the XAG/USD is holding below the 100-period Exponential Moving Average (EMA) on the 4-hour chart at $77.98, which should keep a lid on any further move up beyond the 23.6% Fibo. immediate hurdle. Meanwhile, the Relative Strength Index (RSI) hovers just below the midline, and the Moving Average Convergence Divergence (MACD) has turned positive.
However, improving momentum indicators only hint at a corrective rebound within a broader bearish setup defined by stacked Fibonacci and EMA resistance overhead. The 23.6% Fibo. and the 100-period EMA forms a nearby supply band that needs to be cleared to ease immediate downside pressure. A further advance would then face the 38.2% Fibo. at $79.39 and the 50% level at $81.30, with deeper barriers at $83.21 and $85.92.
On the downside, the main structural support emerges at the prior swing low and Fibonacci anchor at $73.21, where a breakdown would reopen the broader bearish extension toward fresh lows.
(The technical analysis of this story was written with the help of an AI tool.)
XAG/USD 4-hour chart
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
- US Dollar Index drifts higher to around 99.25 in Friday’s early Asian session.
- US Initial Jobless Claims fell to 209K last week, compared to 212K prior.
- An Iranian official said no deal has been reached yet, but gaps have narrowed.
The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 99.25 during the early Asian trading hours on Friday. The DXY gains momentum as investors weigh the likelihood of a near-term deal to end the Middle East war. The US May Michigan Consumer Sentiment Index report will be published later on Friday.
Data released by the US Department of Labor on Thursday showed that the number of Americans filing claims for unemployment benefits fell last week, indicating labor market resilience and providing the Federal Reserve (Fed) with room to focus on rising inflation.
Markets reprice the chance that the Fed would have to tighten policy to contain inflation with the Strait of Hormuz remaining closed and energy markets disrupted. Markets are pricing in a 41.9% chance that the US central bank will raise interest rates by 25 basis points (bps) by year-end, according to the CME FedWatch tool.
Reuters reported that US President Donald Trump will swear in Kevin Warsh, his hand-picked choice to lead the Fed, during a ceremony on Friday. The new Fed Chair will succeed Jerome Powell, whose term expired Friday but who continues to serve on a pro-tempore basis until Warsh officially takes over.
Traders will closely monitor the developments surrounding US-Iran peace talks. Iranian officials said that no deal has been reached with the US, but gaps have been narrowed. Nonetheless, the Islamic Republic’s Supreme Leader, Mojtaba Khamenei, stated that Iran’s uranium enrichment and Tehran’s control over the Strait of Hormuz remain among the sticking points.
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.
On Friday, the People’s Bank of China (PBOC) sets the USD/CNY central rate for the trading session ahead at 6.8373 compared to the previous day's fix of 6.8349 and 6.7992 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.
- USD/CAD rises as lower oil prices weaken the commodity-linked Canadian Dollar.
- WTI falls as US Marco Rubio noted signs of a US-Iran deal and Iranian officials acknowledged narrowed gaps.
- President Trump will swear in Kevin Warsh as the US Federal Reserve chair on Friday at the White House.
USD/CAD gains ground for the fourth consecutive day, trading around 1.3790 during the Asian hours on Friday. The pair appreciates as the commodity-linked Canadian Dollar (CAD) struggles amid lower oil prices, given Canada’s status as the largest crude exporter to the United States (US).
Crude oil prices ease on easing supply concerns amid growing optimism that the United States (US) and Iran could eventually reach an agreement. US Secretary of State Marco Rubio noted there were some encouraging signs surrounding a possible deal with Iran, adding that Pakistani mediators are expected to visit Tehran while Iranian officials review Washington’s latest proposal.
Meanwhile, senior Iranian officials clarified that no deal has been officially reached with the United States, but they acknowledged that the gaps between the two nations have narrowed. However, according to Reuters, the Islamic Republic’s Supreme Leader, Mojtaba Khamenei, stated that Iran’s uranium enrichment and Tehran’s control over the Strait of Hormuz remain major sticking points in the negotiations.
The US Dollar (USD) receives support as prolonged energy disruptions from the ongoing war threaten to feed into core US consumer prices and inflation expectations, which could potentially push the Federal Reserve (Fed) toward interest rate hikes. Furthermore, a stronger US economic growth outlook is adding weight to the case for monetary tightening and boosting the Greenback.
Fed officials remain cautious as they evaluate whether to adjust short-term interest rates. While they are currently holding the federal funds rate steady, policymakers are moving away from the idea of rate cuts and are increasingly open to raising rates if inflation fails to cool down.
Amid these economic developments, the administration of US President Donald Trump announced that he will swear in Kevin Warsh as the chair of the US Federal Reserve on Friday at the White House. The new chair succeeds Jerome Powell, whose term expired on Friday but who has continued to serve on a pro-tempore basis until the transition.
Data from the US Department of Labor (DOL) showed that Initial Jobless Claims fell by 3,000 to 209,000 during the second week of May, indicating continued resilience in the labor market. Meanwhile, Continuing Jobless Claims increased to 1,782,000 for the week ending May 9, up from 1,776,000 the previous week.
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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