Forex News
- EUR/GBP edges up to near 0.8652 ahead of the monetary policy announcement by the BoE and the ECB.
- Both the ECB and the BoE are expected to leave interest rates unchanged.
- The BoE is anticipated to retain its gradual monetary easing guidance.
The EUR/GBP pair trades slightly higher to near 0.8652 during the late Asian trading session on Thursday. The pair edges up as the Pound Sterling (GBP) underperforms ahead of the monetary policy announcement by the Bank of England (BoE) at 12:00 GMT.
The BoE is expected to leave interest rates unchanged at 3.75%, with a 7-2 majority, as it reduced borrowing rates in its last meeting, and guided that the monetary policy will remain on a “gradual downward path”. Therefore, investors will pay close attention to the monetary policy statement and Governor Andrew Bailey’s press conference to get fresh cues on the interest rate outlook.
The United Kingdom (UK) central bank is expected to reiterate gradual monetary easing as employment conditions have remained weak and officials have been confident that price pressures would return to the 2% in the second quarter this year. However, the Consumer Price Index (CPI) accelerated in December after cooling down in October and November.
Meanwhile, the Euro (EUR) trades broadly stable ahead of the European Central Bank’s (ECB) interest rate decision at 13:15 GMT. The ECB is also expected to leave borrowing rates steady, as various officials have expressed that monetary adjustments are inappropriate unless there is a dramatic change in inflation and employment.
On Wednesday, the Eurozone’s preliminary Harmonized Index of Consumer Prices (HICP) data for January cooled down to 1.7% on an annualized basis, as expected, from 1.9% in December.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
- US Dollar Index strengthens on hawkish Fed signals and expectations of a slower pace of rate cuts.
- Fed’s Cook said she won’t support further cuts without clearer evidence that inflation is easing.
- Markets weigh Warsh’s Fed chair nomination, noting his preference for a smaller balance sheet and fewer rate cuts.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, gains ground for the second successive session and is trading around 97.80 during the Asian hours on Thursday.
The Greenback strengthens on hawkish signals from the Federal Reserve (Fed) and expectations of a slower pace of US rate cuts. Fed Governor Lisa Cook said she would not back another cut without clearer evidence that inflation is easing, stressing greater concern over stalled disinflation than labor market weakness.
Moreover, the implications of Kevin Warsh’s nomination as Fed chair are citing his preference for a smaller balance sheet and a less aggressive approach to rate reductions. However, US President Donald Trump said he would not have nominated Warsh if he favored rate hikes. Trump further stated that there was “not much” doubt the US central bank would lower rates because “we’re way high in interest,” but now “we’re a rich country again.”
On the data front, the ADP Employment Change showed private payrolls increased by just 22K in January, well below market expectations for a stronger 48K reading and 37K (revised from 41K) prior. The weak print carried extra weight given the postponement of official government data. Institute for Supply Management (ISM) remained unchanged in January, with the ISM Services PMI holding steady at 53.8. The print, however, came in above analysts' expectations of 53.5.
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.
Gold prices fell in India on Thursday, according to data compiled by FXStreet.
The price for Gold stood at 14,224.56 Indian Rupees (INR) per gram, down compared with the INR 14,382.49 it cost on Wednesday.
The price for Gold decreased to INR 165,924.70 per tola from INR 167,754.50 per tola a day earlier.
Unit measure | Gold Price in INR |
|---|---|
1 Gram | 14,224.56 |
10 Grams | 142,255.20 |
Tola | 165,924.70 |
Troy Ounce | 442,426.70 |
FXStreet calculates Gold prices in India by adapting international prices (USD/INR) to the local currency and measurement units. Prices are updated daily based on the market rates taken at the time of publication. Prices are just for reference and local rates could diverge slightly.
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.
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- EUR/USD weakens to near 1.1785 in Thursday’s early European session.
- The ECB is expected to keep rates on hold at its February meeting on Thursday.
- Renewed concerns over the Fed’s independence might cap the downside for the major pair.
The EUR/USD pair loses ground to around 1.1785 during the early European trading hours on Thursday. The Euro (EUR) softens against the US Dollar (USD) as Eurozone inflation declined well below target ahead of the European Central Bank (ECB) interest rate decision. The German Factory Orders and Eurozone Retail Sales are also due later on Thursday.
Data released by Eurostat showed on Wednesday that the Eurozone Harmonized Index of Consumer Prices (HICP) inflation eased to 1.7% YoY in January, versus 1.9% prior. Meanwhile, the core HICP rose 2.3% YoY in January, compared to 2.3% in December. Both figures came in line with the expectations. These readings have fueled expectations for future ECB interest rate cuts, which could exert some selling pressure on the shared currency.
Later on Thursday, all eyes will be on the ECB interest rate decision. Analysts widely anticipate the benchmark interest rates to remain on hold for the fifth consecutive time. Traders will closely watch the ECB President Christine Lagarde's press conference for more hints about the interest rate outlook over the coming months.
"The emphasis will likely be on higher uncertainty," with only minor tweaks in communication, said Bank of America analysts. ”Our conviction in a March cut is not rock solid, but we remain convinced of an easing bias from here."
Across the pond, doubts over the Federal Reserve (Fed) independence could undermine the Greenback and act as a tailwind for the major pair. US President Donald Trump said on Thursday that he would have passed on Kevin Warsh as his nominee to lead the US central bank if Warsh had expressed a desire to hike interest rates, per Bloomberg.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger 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.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
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 European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
- GBP/USD slips as the Pound Sterling weakens ahead of the Bank of England’s interest rate decision.
- The BoE is expected to hold rates in February after a narrow December cut, with limited impact on long-term fundamentals.
- The US Dollar gains on the emerging likelihood of a slower pace of Fed rate cuts.
GBP/USD extends its losses for the second successive session, trading around 1.3620 during the Asian hours on Thursday. The pair weakens as the Pound Sterling (GBP) comes under pressure ahead of the Bank of England’s (BoE) interest rate decision later in the day.
The BoE’s MPC is widely expected to keep policy unchanged in February, with little anticipated to alter longer-term fundamentals after a narrow 5–4 vote to cut rates by 25 bps in December.
The GBP/USD pair depreciates as the US Dollar (USD) advances on hawkish signals from the Federal Reserve (Fed) and expectations of a slower pace of US rate cuts. Moreover, the implications of Kevin Warsh’s nomination as Fed chair is citing his preference for a smaller balance sheet and a less aggressive approach to rate reductions.
However, US President Donald Trump said he would not have nominated Warsh if he favored rate hikes. Trump further stated that there was “not much” doubt the US central bank would lower rates because “we’re way high in interest,” but now “we’re a rich country again.”
On data front, the ADP Employment Change showed private payrolls increased by just 22K in January, well below market expectations for a stronger 48K reading and 37K (revised from 41K) prior. The weak print carried extra weight given the postponement of official government data. Institute for Supply Management (ISM) remained unchanged in January, with the ISM Services PMI holding steady at 53.8. The print, however, came in above analysts' expectations of 53.5.
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.
- Silver price declines as precious metals faced renewed selling pressure and heightened volatility.
- Dollar-denominated silver slips as a stronger USD reflects hawkish Fed signals and slower rate-cut expectations.
- Fed’s Cook said she won’t support further cuts without clearer signs inflation is easing.
Silver price (XAG/USD) plunged over 10% after two days of gains, trading around $77.00 per troy ounce during the Asian hours on Thursday. Silver prices fall as precious metals face renewed selling pressure and increased volatility.
Dollar-denominated precious metals, including Silver lose ground amid a stronger US Dollar (USD), fueled by hawkish signals from the Federal Reserve (Fed) and expectations of a slower pace of US rate cuts.
Fed Governor Lisa Cook said she would not back another cut without clearer evidence that inflation is easing, stressing greater concern over stalled disinflation than labor market weakness.
Investors also weighed the implications of Kevin Warsh’s nomination as Fed chair, citing his preference for a smaller balance sheet and a less aggressive approach to rate reductions. Meanwhile, US President Donald Trump said he would not have nominated Warsh if he favored rate hikes. Trump further stated that there was “not much” doubt the US central bank would lower rates because “we’re way high in interest,” but now “we’re a rich country again.”
The safe-haven demand for Silver fades amid geopolitical tensions, which eased after the US and Iran are set to hold a new round of talks on Friday, though the agenda remains unclear. Tehran aims to limit discussions to its nuclear program, while Washington wants to include ballistic missiles, regional militant support, and human rights concerns.
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.
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