Forex Today: Political jitters weigh on Euro, US Dollar continues to push higher

June 10, 2024 8:58 am

Here is what you need to know on Monday, June 10:

The US Dollar (USD) preserves its strength, while the Euro struggles to find demand at the beginning of the week as markets assess the preliminary results of the European Parliament election. Sentix Investor Confidence for June will be the only data featured in the European economic docket on Monday. The US economic calendar will not offer any high-impact data releases ahead of Wednesday’s key Consumer Price Index (CPI) figures and the Federal Reserve’s monetary policy announcements.

US Dollar PRICE Last 7 days

The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the strongest against the Canadian Dollar.

USD   0.78% 0.14% -0.22% 1.00% 0.84% 0.36% -0.72%
EUR -0.78%   -0.60% -1.00% 0.21% -0.06% -0.42% -1.51%
GBP -0.14% 0.60%   -0.32% 0.82% 0.61% 0.13% -0.91%
JPY 0.22% 1.00% 0.32%   1.20% 1.10% 0.73% -0.34%
CAD -1.00% -0.21% -0.82% -1.20%   -0.19% -0.63% -1.72%
AUD -0.84% 0.06% -0.61% -1.10% 0.19%   -0.36% -1.47%
NZD -0.36% 0.42% -0.13% -0.73% 0.63% 0.36%   -1.13%
CHF 0.72% 1.51% 0.91% 0.34% 1.72% 1.47% 1.13%  

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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

Strong labor market data from the US triggered a rally in the US Treasury bond yields and provided a boost to the USD. The benchmark 10-year US yield gained more than 3% on Friday and the USD Index rose 0.8% to end the week in positive territory. Early Monday, the USD Index continues to push higher and was last seen trading at its highest level since mid-May slightly above 105.20. Meanwhile, US stock index futures trade modestly lower on the day after posting small losses on Friday.

The US Bureau of Labor Statistics reported that Nonfarm Payrolls rose 272,000 in May. This reading followed the 165,000 increase recorded in April and surpassed the market expectation of 185,000 by a wide margin. Additionally, the annual wage inflation, as measured by the change in the Average Hourly Earnings, rose 4.1%, coming in above analysts’ estimate of 3.9%. 

According to the preliminary results, the European People’s Party became the clear winner, gaining 8 seats to secure a total of 184 seats in the European Parliament. In Germany, the main opposition conservative party, CDU, received 30% of the vote, while the far-right Alternative for Germany (AfD) party got nearly 16% of the vote to surpass Chancellor Olaf Scholz’s SPD. Populist prime minister Giorgia Meloni’s far-right Brothers of Italy took 29% of the vote in Italy and the far-right Freedom Party (FPÖ) in Austria won with 25.5%. French President Emmanuel Macron said that far-right parties in Europe were “progressing across the continent” and called for a snap election after National Rally won 31.5% of the vote against the Besoin d’Europe alliance’s – including President Macron’s Renaissance – 14.5%.

Euro Stoxx 50 is down more than 1% in the early European session, Germany’s DAX 30 is losing 0.6% and France’s CAC 40 Index is falling more than 1.5%. In the meantime, the Euro is struggling to hold its ground against its rivals, with EUR/USD trading deep in negative territory slightly above 1.0750.

EUR/USD declines to one-month low amid Eurozone’s political uncertainty.

After falling sharply on Friday, GBP/USD holds steady above 1.2700 in the European morning. The UK’s Office for National Statistics will release employment data on Tuesday.

USD/JPY gained more than 0.7% on Friday but seems to be having a difficult time gathering bullish momentum on Monday. At the time of press, the pair was trading marginally higher on the day at around 157.00.

Japanese Yen remains subdued, US Dollar advances due to risk aversion.

Gold lost over 3% on Friday and registered one of its biggest daily losses of the year. The broad-based US Dollar strength, rallying US yields and news of China’s central bank halting Gold purchases into its reserves for the first time in 18 months weighed heavily on XAU/USD. In the European morning on Monday, Gold trades slightly below $2,300.

Gold price attracts some sellers near one-month low amid firmer US Dollar.

Risk sentiment FAQs

In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

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