Forex Today: USD holds its weekly gains as markets stay focused on geopolitics
Here’s what you need to know on Thursday, February 19:
The US Dollar (USD) showed renewed strength in the latter part of Wednesday, aided by a hawkish tone reflected in the Federal Reserve’s (Fed) January policy meeting minutes. The US economic calendar will highlight December Goods Trade Balance figures and the weekly Initial Jobless Claims data. In the meantime, investors are closely watching geopolitical developments.
USD Performance This Week
The table below summarizes how the USD has moved against major currencies this week. The dollar is strongest against the Japanese Yen.
USD EUR GBP JPY CAD AUD NZD CHF
USD 0.62% 1.04% 1.57% 0.53% -0.01% 0.77% 0.52%
EUR -0.62% 0.42% 0.95% -0.09% -0.64% 0.15% -0.10%
GBP -1.04% -0.42% 0.27% -0.50% -1.05% -0.27% -0.52%
JPY -1.57% -0.95% -0.27% -1.03% -1.54% -0.79% -1.00%
CAD -0.53% 0.09% 0.50% 1.03% -0.58% 0.25% -0.02%
AUD 0.00% 0.64% 1.05% 1.54% 0.58% 0.80% 0.54%
NZD -0.77% -0.15% 0.27% 0.79% -0.25% -0.80% -0.25%
CHF -0.52% 0.10% 0.52% 1.00% 0.02% -0.54% 0.25%
The heat map illustrates how each major currency has moved versus the others, with the base currency chosen from the left column and the quote currency from the top row. For instance, selecting the US Dollar as the base and moving across toward the Japanese Yen yields the percentage change for USD/JPY.
In the Fed minutes, policymakers signaled a willingness to describe future moves in a two-sided manner, acknowledging that further rate hikes could be appropriate if inflation stays above target. Commenting on the FOMC Minutes, MUFG’s Senior Currency Analyst Lloyd Chan noted that the minutes conveyed a hawkish tone despite some dissent, contributing to near-term USD sentiment. The USD Index rose more than 0.5% on Wednesday and reached its highest level in over a week near 97.80 during the early Asian hours on Thursday. As of writing, the index hovered around 97.70, essentially flat for the day.
CBS News reported early Thursday that the US military is prepared for possible strikes on Iran as soon as Saturday. Citing sources familiar with the matter, the report said that the USS Abraham Lincoln carrier group and accompanying ships are already in the region, with the USS Gerald Ford carrier group en route to the Middle East. Escalating geopolitical tensions have supported gold, which traded above the $5,000 level amid risk-driven moves.
Australian data released early Thursday showed the unemployment rate at 4.1% in January, steady with December but better than the 4.2% expected. Employment Change came in at +17.8K, slightly below forecasts of +20K. As a result, AUD/USD has gained momentum and trades above 0.7050.
New Zealand’s central bank (RBNZ) Governor Anna Breman said the committee will adjust policy if inflation prospects change, aiming to return inflation to target. After dropping more than 1% on Wednesday, NZD/USD recovered and trades near 0.5980, up more than 0.3% on the day.
EUR/USD faced pressure from the renewed strength in the USD, sliding about 0.6% during the US session on Wednesday. It later retraced and trades near 1.1800 on Thursday.
GBP/USD fell over 0.5% on Wednesday, marking a third straight day in the red. After hitting a four-week low near 1.3480 in the Asian session, it recovered to the 1.3500 area by the European morning.
USD/JPY continues its climb, trading close to 155.00 after rising roughly 1% on Wednesday.
US Dollar Quick Facts
The US Dollar (USD) is the official currency of the United States and serves as the de facto global reserve currency. It dominates global foreign exchange turnover, accounting for roughly 88% of daily trades, with about $6.6 trillion exchanged on an average day (data from 2022). After World War II, the USD overtook the British pound as the world’s primary reserve currency. For much of its history, the USD was backed by gold until the Bretton Woods system ended in 1971 when the Gold Standard was abandoned.
The Fed’s monetary policy is the single most influential factor affecting the USD’s value. The Fed pursues two mandates: price stability (curbing inflation) and maximum employment. The primary instrument is the adjustment of interest rates. When inflation runs hot and above the 2% target, the Fed typically raises rates, supporting the USD. Conversely, when inflation is subdued or unemployment is too high, the Fed may cut rates, which can weigh on the dollar.
In extreme scenarios, the Fed can deploy quantitative easing (QE) to inject credit into a stressed financial system, effectively expanding the money supply. QE was notably used during the 2008 financial crisis to stabilize markets, often weakening the USD as new dollars were created to buy government bonds.
Quantitative tightening (QT) is the opposite process, where the Fed stops reinvesting or reduces its balance sheet. QT is typically supportive of the USD as it reduces monetary stimulus.
