Forex News
The People’s Bank of China (PBOC) sets the USD/CNY central rate for the trading session ahead on Thursday at 6.9457 compared to the previous day's fix of 6.9438 and 6.9153 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.
- EUR/USD consolidates in a range during the Asian session amid mixed fundamental cues.
- The upbeat US NFP tempers bets for more Fed rate cuts and lends some support to the USD.
- Relatively hawkish ECB expectations act as a tailwind for the EUR and the currency pair.
The EUR/USD pair struggles to capitalize on the overnight bounce from the 1.1835-1.1830 region and oscillates in a narrow band during the Asian session on Thursday. Spot prices currently trade around the 1.1875 area, remaining nearly unchanged for the day and staying within striking distance of an over one-week high, reached on Tuesday, amid mixed cues.
Investors trimmed their expectations for more aggressive policy easing by the US Federal Reserve (Fed) following the release of a strong US Nonfarm Payrolls (NFP) report on Wednesday. Furthermore, hawkish comments from Kansas City Fed President Jeffrey Schmid, saying that further rate cuts risk allowing high inflation to persist even longer, assist the US Dollar (USD) to hold steady above a nearly two-week low. This, in turn, is seen as a key factor acting as a headwind for the EUR/USD pair.
Market participants, however, are still pricing in the possibility of at least two 25 basis points (bps) Fed rate cuts in 2026. Adding to this, threats to the US central bank's independence, along with the underlying bullish sentiment, contribute to capping the safe-haven Greenback. The shared currency, on the other hand, is underpinned by the growing acceptance that the European Central Bank (ECB) would likely hold interest rates steady for the rest of the year, lending support to the EUR/USD pair.
There aren't any relevant market-moving economic releases due from the Eurozone on Thursday, while the US economic docket features the usual Weekly Initial Jobless Claims later during the North American session. The spotlight now shifts to the US consumer inflation figures, due on Friday. The crucial data will be looked for more cues about the Fed's rate-cut path, which, in turn, will play a key role in influencing the USD price dynamics and providing some meaningful impetus to the EUR/USD pair.
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.
Atsushi Mimura, Japan’s Vice Finance Minister for International Affairs and top foreign exchange official, said on Thursday that authorities are watching developments “with a high sense of urgency” and are not lowering their guard amid renewed Japanese Yen volatility.
Key quotes
Authorities are watching FX with high urgency.
Refuses to comment on specific exchange-rate levels.
Tokyo is in close contact with US authorities.
Japan is not lowering its guard.
Tone measured but US reference notable.
Market reaction
At the time of writing, the USD/JPY pair is trading around 153.24, up 0.02% on the day.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
- Gold price trades with mild gains near $5,060 in Thursday’s early Asian session.
- Trump told Netanyahu that Iran's nuclear talks must continue.
- US NFP rose by 130,000 in January, Unemployment rate fell to 4.3%.
Gold price (XAU/USD) trades in positive territory near $5,060 during the early Asian session on Thursday. The precious metal edges higher despite stronger-than-expected US employment data. The release of the US Consumer Price Index (CPI) inflation report will take center stage later on Friday.
The rally of the yellow metal is bolstered by safe-haven demand amid uncertainty and tensions between the United States (US) and Iran. US President Donald Trump said he insisted talks with Iran continue during a meeting with Israeli Prime Minister Benjamin Netanyahu. Trump also warned that he may take action against Tehran if a nuclear deal is not reached.
US Nonfarm Payrolls (NFP) increased by 130,000 in January, above the market consensus of 70,000, according to the Bureau of Labor Statistics on Wednesday. This figure was an improvement over December, which saw a gain of 48,000 after a slight downward revision.
Meanwhile, the Unemployment Rate edged lower to 4.3% in January from 4.4% in December, below the forecast to stay unchanged at 4.4%. The upbeat report provides some relief to concerns about the state of the US labor market, which could lift the US Dollar (USD) and weigh on the USD-denominated commodity price.
Federal Reserve (Fed) Bank of Kansas City President Jeff Schmid said on Wednesday that the central bank needs to keep rates at restrictive levels to continue putting downward pressure on inflation and added he’s not seeing many indications of restraint in the economic data.
Traders will keep an eye on the US CPI report on Friday, which might offer some clues about the interest rate path. The headline and core CPI are expected to show a rise of 2.5% YoY in January. Any signs of softer inflation could reduce the chance that the US central bank will see a need to cut interest rates again by midyear. This could undermine the non-yielding asset, such as Gold.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
BNY’s Head of Markets Macro Strategy Bob Savage reports strong demand for Chinese bonds sold in Hong Kong, with yields at decade lows after PBoC liquidity injections ahead of Lunar New Year. At the same time, Chinese CPI and PPI undershot expectations, reinforcing a deflationary backdrop and prompting authorities to pledge more proactive macro policies as domestic demand and industrial profits remain weak.
Offshore bonds and deflation pressures
"Debt demand: China sold ¥14bn of bonds in Hong Kong at a 3.94 bid/cover ratio, with yields dropping to 2013 lows: 2y at 1.38%, 3y at 1.40% and 5y at 1.57%. The PBoC has added liquidity ahead of the Lunar New Year, leaving the overnight rate at 1.37%. 7-day rates dropped 2bp to 1.53% after PPI posted a smaller-than-expected y/y fall of 1.4%, linked to commodity prices. CNY was close to flat at 6.91."
"Chinese consumer inflation rose 0.2% y/y in January, down from 0.8% in December and below market expectations of 0.4%. The producer price index fell 1.4% y/y, extending a prolonged deflationary trend despite a slight easing vs. the previous month."
"Authorities have pledged more proactive macroeconomic policies as persistent supply and demand imbalances and weak domestic demand continue to weigh on price pressures and industrial profits."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Reserve Bank of Australia (RBA) Governor Michele Bullock said on Thursday that bringing inflation down may or may not require further rate hikes. Bullock further stated that central bank will continue to look at data and will act if inflation seems entrenched.
Key quotes
Higher Australian dollar and higher rates will help drive demand down into balance.
Will find it hard to grow economy above 2 percent without rise in productivity.
Bringing inflation down may or may not require further rate hikes.
Will continue to look at data and will act if inflation seems entrenched.
Economy is actually doing okay, labor market is good news.
Market reaction
At the time of writing, the AUD/USD pair is trading 0.72% higher on the day to trade at 0.7124.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
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