Forex Today: US Dollar struggles as risk flows dominate markets
Here is what you need to know on Wednesday, August 5:
Risk flows dominate financial markets early Wednesday as investors grow optimistic about a diplomatic solution to the conflict in the Middle East. In the second half of the day, private sector employment data and the Institute for Supply Management's (ISM) Services Purchasing Managers' Index (PMI) report for July will be featured in the US economic calendar.
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 weakest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.12% | 0.31% | 0.33% | 0.47% | -0.06% | 0.58% | 0.26% | |
| EUR | -0.12% | 0.20% | 0.25% | 0.36% | -0.08% | 0.47% | 0.15% | |
| GBP | -0.31% | -0.20% | -0.30% | 0.17% | -0.27% | 0.25% | -0.06% | |
| JPY | -0.33% | -0.25% | 0.30% | 0.21% | -0.24% | 0.36% | 0.02% | |
| CAD | -0.47% | -0.36% | -0.17% | -0.21% | -0.44% | 0.16% | -0.22% | |
| AUD | 0.06% | 0.08% | 0.27% | 0.24% | 0.44% | 0.54% | 0.20% | |
| NZD | -0.58% | -0.47% | -0.25% | -0.36% | -0.16% | -0.54% | -0.33% | |
| CHF | -0.26% | -0.15% | 0.06% | -0.02% | 0.22% | -0.20% | 0.33% |
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).
Crude Oil prices declined sharply on Tuesday after news suggesting that activity in the Strait of Hormuz would resume. The barrel of West Texas Intermediate (WTI) declined nearly 6% on the day before stabilizing at around $74 early Wednesday. US President Donald Trump reiterated that the Strait of Hormuz would be "reopened soon" or that they would launch a new attack on Iran.
Brent slides below $80 as US–Iran deal hopes hit oil and bond markets
Strategists at Danske Bank attribute the latest leg lower in Brent to geopolitics, noting that “the sharp drop was triggered by news that US and Iran may be nearing a deal to reopen the Strait of Hormuz again.” They highlight comments from US Treasury Secretary Scott Bessent, who said yesterday that an agreement between the US and Iran could come “today or tomorrow,” a remark that “sent Brent crude below $80/bbl."
Wall Street's main indexes opened higher on Tuesday and registered impressive gains, with the Dow Jones Industrial Average (DJIA) and the S&P 500 indexes both closing at new record highs. In the meantime, the US Dollar (USD) Index posted small daily losses. In the European morning on Wednesday, the USD Index stays below 100.00, while US stock index futures 0.3% and 0.5% on the day.
Schmid flags AI-driven inflation risks, backing tighter Fed stance despite resilient growth
Earlier in the day, Federal Reserve Bank of Kansas City President Jeff Schmid delivered a hawkish message, with a 7.3/10 FXS Speechtracker score edging above the 7/10 historical average and emphasizing that current policy is “not tight” enough. The focus on AI-related investment as an inflation driver, the warning that recent disinflation is too tentative to confirm an easing trend, and the insistence that tighter monetary policy is still needed to bring PCE-based inflation back to the 2% target underscore a clear bias toward further restraint even as growth and the labor market remain resilient and roughly balanced. By stressing that inflation is “too high” and “worrisome” and should not be downplayed even when supply shocks are involved, the speech leans firmly against any premature pivot narrative for the Dollar.
USD/JPY managed to close in positive territory on Tuesday even though the USD struggled to gather strength. The pair stays in a consolidation phase below 158.00 in the early European session. Japanese Chief Cabinet Secretary Minoru Kihara said on that specific monetary policy means are up to the Bank of Japan (BoJ) to decide.
EUR/USD gained about 0.2% on Tuesday and erased Monday's losses. The pair holds steady above 1.1530 in the European morning on Wednesday. Later in the session, Eurostat will publish Producer Price Index data for June.
GBP/USD moves sideways at around 1.3450 after posting moderate gains on Tuesday.
Gold gathers bullish momentum mid-week and trades near $4,170 in the European morning, rising more than 2% on the day.
Gold finds support from softer energy prices but faces Fed policy headwinds
Strategists at ING note that “lower energy prices have eased some inflation concerns, offering a more supportive backdrop for bullion.” However, they stress that “markets continue to assess the outlook for US monetary policy following last week's Federal Reserve meeting,” with expectations that rates may remain elevated. ING adds that “any further decline in energy prices could help improve the macro backdrop for bullion, though expectations for rates to stay higher for longer may continue to limit upside.”
Earlier in the day, the data from New Zealand showed that the Unemployment Rate rose to 5.6% in the second quarter from 5.4% in the first quarter and missed the market expectation of 5.4%. NZD/USD remains unders bearish pressure following the disappointing data and was last seen trading near 0.5870, losing about 0.5% on the day.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.