Financial markets began the week quietly with major currency pairs largely stable near the previous week’s closing levels. The economic calendar on Monday did not feature any significant data releases, so investors focused on comments from central bank officials. The US Dollar Index recovered slightly on Friday after falling sharply on Thursday, supported by a more hawkish tone from Federal Reserve policymakers. On Monday morning, the USD Index held steady above 105.00 while the 10-year US Treasury bond yield remained around 4.5%. US stock index futures traded slightly higher as well.
In terms of currency performance over the last seven days, the US Dollar was weakest against the Japanese Yen. The heat map displayed percentage changes of major currencies against each other, with the base currency in the left column and the quote currency in the top row. For example, the US Dollar was weakest against the Japanese Yen compared to other major currencies. In forex, the EUR/USD pair retraced slightly on Friday but still managed to end the week with modest gains. Meanwhile, the GBP/USD pair recovered from a two-week low below 1.2450 on Thursday to close the week above 1.2500. The pair continued to trade within a narrow range at the start of the week.
In Australia, the National Australia Bank’s Business Conditions Index fell to 7 in April from 9 in March, while the Business Confidence Index remained unchanged at 1. The Australian Dollar showed no significant reaction to these figures and was trading sideways near 0.6600. Additionally, China’s Consumer Price Index rose 0.3% year-on-year in April, surpassing market expectations. The Japanese Yen edged lower against the US Dollar after a strong performance the previous week. In the upcoming Asian session on Tuesday, the Producer Price Index for April will be featured in the Japanese economic calendar. Gold prices gained 2.5% and broke a two-week losing streak, but saw a slight correction early in the week.
The Federal Reserve (Fed) plays a crucial role in shaping monetary policy in the US, aiming to achieve price stability and full employment. The Fed adjusts interest rates to achieve these goals, raising rates when inflation is high and lowering them when inflation is below the target or unemployment is high. The Fed holds eight policy meetings a year where decisions are made by the Federal Open Market Committee (FOMC). In extreme situations, the Fed may use Quantitative Easing (QE) to increase credit flow in the financial system. QE involves the Fed buying high grade bonds from financial institutions, which can weaken the US Dollar. On the other hand, Quantitative Tightening (QT) is the reverse process of QE, usually leading to a stronger Dollar.
