Forex Today: Eyes on ECB policy announcements following CPI-inspired USD rally
Here is what you need to know on Thursday, April 11:
The US Dollar (USD) registered impressive gains against its rivals following the strong inflation data on Wednesday. The European Central Bank (ECB) will announce monetary policy decisions after the conclusion of the April meeting on Thursday and the US economic docket will feature the weekly Initial Jobless Claims data alongside the Producer Price Index (PPI) figures for March.
The Consumer Price Index (CPI) in the US rose 3.5% on a yearly basis in March, the US Bureau of Labor Statistics reported on Wednesday. This reading followed the 3.2% increase recorded in February and came in above the market expectation of 3.4%. On a monthly basis, the CPI and the core CPI both rose 0.4%.
The USD Index surged higher and reached its strongest level since November above 105.00, rising over 1% on the day. Later in the day, the minutes of the Federal Reserve's March meeting showed that policymakers expressed general uncertainty about the persistence of elevated inflation and indicated that recent data did not increase their confidence in inflation trending sustainably towards the 2% target. Meanwhile, the benchmark 10-year US Treasury bond yield advanced beyond 4.5% and major equity indexes in the US lost around 1%.
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 Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.88% | 0.67% | 0.60% | 0.74% | 0.92% | 0.34% | 1.17% | |
| EUR | -0.88% | -0.19% | -0.28% | -0.13% | 0.06% | -0.53% | 0.33% | |
| GBP | -0.69% | 0.20% | -0.08% | 0.07% | 0.24% | -0.33% | 0.50% | |
| CAD | -0.60% | 0.28% | 0.08% | 0.15% | 0.32% | -0.25% | 0.57% | |
| AUD | -0.75% | 0.13% | -0.06% | -0.15% | 0.18% | -0.41% | 0.43% | |
| JPY | -0.92% | -0.05% | -0.23% | -0.33% | -0.17% | -0.56% | 0.27% | |
| NZD | -0.34% | 0.52% | 0.34% | 0.25% | 0.40% | 0.57% | 0.81% | |
| CHF | -1.20% | -0.33% | -0.50% | -0.59% | -0.45% | -0.28% | -0.86% |
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 Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
The ECB is widely anticipated to leave key rates unchanged. Following the policy announcements, ECB President Christine Lagarde will speak on the policy outlook and respond to questions from the press. EUR/USD lost more than 1% on Wednesday and was last seen trading slightly below 1.0750.
The Bank of Canada (BoC) maintained the policy rate at 5% as expected on Wednesday. In the post-meeting press conference, BoC Governor Tiff Macklem said that a June rate cut was "within the realm of possibilities." USD/CAD gathered bullish momentum and advanced to its highest level since November above 1.3700. The pair stays in a consolidation phase slightly below this level in the European morning on Thursday.
USD/JPY broke out of its three-week-old range and rose to a fresh multi-decade high above 153.00. The pair fluctuates in a tight channel above this level in the early European session.
GBP/USD extended its slide after dropping below 1.2600 and lost over 1% on Wednesday. The pair holds steady slightly below 1.2550 to start the European session.
Gold staged a deep correction on Wednesday and declined below $2,320. XAU/USD edged slightly higher during the Asian trading hours and was last seen trading in positive territory near $2,340.
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.