Forex News
- EUR/USD extends its decline as the Euro gains little support from the ECB rate hike.
- The ECB lifts its deposit facility rate to 2.50% and raises its longer-term inflation forecasts.
- US PPI data and rising US Treasury yields help the US Dollar recover.
EUR/USD extends its intraday decline on Thursday as a recovery in the US Dollar (USD) weighs on the Euro (EUR), while the European Central Bank’s (ECB) widely expected rate hike fails to offer support. The Greenback also finds some support from US Producer Price Index (PPI) data, which showed hotter-than-expected annual headline inflation. At the time of writing, the pair trades around 1.1604, down roughly 0.25% on the day.
ECB raised its three key interest rates by 25 basis points, marking its second hike this year and bringing the deposit facility rate to 2.50%. The ECB said, “The conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period. Today’s decision underscores the Governing Council’s commitment to setting monetary policy to ensure that inflation stabilises at its 2% target in the medium term.”
Updated projections show headline inflation averaging 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028. Inflation excluding food and energy is expected to average 2.5% in 2026, 2.6% in 2027 and 2.3% in 2028.
The central bank warned that inflation risks are tilted to the upside, while risks to economic growth are tilted to the downside. It reiterated that future decisions will depend on incoming data and will be taken meeting by meeting, adding that it is not committing to a particular interest-rate path.
US PPI rose 0.4% MoM in August, matching market expectations and accelerating from the 0.1% increase recorded in July. Annual producer inflation climbed to 5.4%, slightly above the 5.3 forecast and up from 4.8%. Core PPI rose 0.2% MoM in August, below the 0.3% forecast and the previous 0.3% increase. On an annual basis, core producer inflation rose to 4.6% from 4.3%, in line with expectations.
The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99.10, recovering from an intraday low of 98.71. Rising US Treasury yields offer additional support to the Greenback, with the benchmark 10-year yield climbing to around 4.90%, its highest level since November 2023.
The PPI figures suggest that inflation pressures remain elevated, strengthening the case for a Federal Reserve (Fed) rate hike next week. Elevated Oil prices add to these concerns and could make it harder for inflation to return to the Fed’s 2% target. According to the CME FedWatch Tool, traders price in around a 64% probability of a 25-basis-point increase at the September 15-16 meeting.
Attention now turns to Friday’s US Consumer Price Index (CPI) report, which could play a more decisive role in shaping the Fed’s decision.
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.25% | 0.29% | 0.51% | 0.16% | 0.71% | 0.58% | 0.35% | |
| EUR | -0.25% | 0.04% | 0.25% | -0.10% | 0.45% | 0.32% | 0.10% | |
| GBP | -0.29% | -0.04% | 0.21% | -0.14% | 0.42% | 0.29% | 0.07% | |
| JPY | -0.51% | -0.25% | -0.21% | -0.33% | 0.24% | 0.07% | -0.12% | |
| CAD | -0.16% | 0.10% | 0.14% | 0.33% | 0.56% | 0.41% | 0.18% | |
| AUD | -0.71% | -0.45% | -0.42% | -0.24% | -0.56% | -0.13% | -0.34% | |
| NZD | -0.58% | -0.32% | -0.29% | -0.07% | -0.41% | 0.13% | -0.18% | |
| CHF | -0.35% | -0.10% | -0.07% | 0.12% | -0.18% | 0.34% | 0.18% |
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).
The US Producer Price Index (PPI) rose 5.4% in August from a year earlier, according to the latest figures from the Bureau of Labor Statistics (BLS). The print came in just above estimates (5.3%) and the 4.8% gain recorded in the previous month (revised from 4.7%).
Stripping out food and energy, core Producer Prices matched consensus, gaining 4.6% YoY, up from the previous 4.3% increase (revised from 4.2%YoY).
On a monthly basis, the headline PPI edged up 0.4%, and the core PPI rose by 0.2%.
Market reaction
The Greenback manages to gather renewed upside traction, leaving behind three daily pullbacks in a row and hitting three-day highs past the 99.00 mark when measured by the US Dollar Index (DXY).
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.
Royal Bank of Canada (RBC) economist Nathan Janzen assesses that new U.S. tariff retaliation and import bans on selected Canadian products represent a modest escalation in the trade dispute. Section 338 measures still cover a small share of bilateral trade, with targeted sector disruption but limited macroeconomic impact. The main concern remains potential future escalation into a broader Canada/U.S. trade war.
Targeted tariffs, contained macro impact
"The U.S. administration’s latest response to Canada’s retaliatory tariffs following the breakdown of bilateral trade negotiations may sound alarming, but they represent a relatively minor escalation in the trade war."
"Section 338 tariffs continue to affect a small share of trade (5% of U.S. imports from Canada), causing significant disruption in targeted sectors, but with limited broader impact on the economy."
"The real risk remains further escalation into a tit-for-tat trade war covering a much larger share of trade—something that hasn’t occurred with this latest development yet."
"This marks an escalation, but with a 50% tariff on these products, many were already likely too expensive for U.S. importers to buy."
"Therefore, the marginal impact of the change on the Canadian economy is likely relatively small (again, notwithstanding the significant impact on specific exporters targeted)."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- Initial Jobless Claims went down to 206K vs. the previous week.
- Continuing Jobless Claims fell to 1.774M.
According to a report from the US Department of Labour (DOL) released on Thursday, the number of US citizens submitting new applications for unemployment insurance decreased to 206K for the week ending September 5. The latest print came in above initial estimates (205K) and was a tad lower than the previous week’s 207K (revised from 206K).
Additionally, the 4-week moving average went down by 1.5K to 206K vs. the previous week’s revised prints.
The report also indicated that Continuing Jobless Claims fell by 1K to 1.774M for the week ending August 29.
Market reaction
The Greenback trades with decent gains, challenging the key 99.00 barrier when gauged by the US Dollar Index (DXY), as investors continue to assess the jobs report as well as wholesale inflation data.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
Forex Market News
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