Forex Today: Market attention turns to ECB policy decisions
Here is what you need to know on Thursday, March 6:
Following another volatile trading day, financial markets remain relatively quiet early Thursday as investors await the European Central Bank's (ECB) monetary policy announcements. Ahead of Friday's highly-anticipated February employment report, the US economic calendar will feature weekly Initial Jobless Claims and Unit Labor Costs data for the fourth quarter.
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 Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -3.95% | -2.50% | -0.95% | -0.78% | -2.07% | -2.38% | -1.28% | |
| EUR | 3.95% | 1.40% | 2.90% | 3.11% | 1.85% | 1.44% | 2.59% | |
| GBP | 2.50% | -1.40% | 1.60% | 1.69% | 0.44% | 0.05% | 1.17% | |
| JPY | 0.95% | -2.90% | -1.60% | 0.38% | -1.09% | -1.40% | -0.34% | |
| CAD | 0.78% | -3.11% | -1.69% | -0.38% | -1.15% | -1.62% | -0.50% | |
| AUD | 2.07% | -1.85% | -0.44% | 1.09% | 1.15% | -0.39% | 0.76% | |
| NZD | 2.38% | -1.44% | -0.05% | 1.40% | 1.62% | 0.39% | 1.13% | |
| CHF | 1.28% | -2.59% | -1.17% | 0.34% | 0.50% | -0.76% | -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).
The US Dollar (USD) continued to weaken against its major rivals on Thursday despite the upbeat ISM Services PMI report. US President Donald Trump has decided to grant the US automative industry a one-month exemption from this week's stiff 25% tariffs imposed on Canada and Mexico. Additionally, Bloomberg reported that Trump is also considering exempting certain agricultural products from tariffs. These developments allowed risk flows to return and Wall Street's main indexes gained more than 1% on the day. Meanwhile, the USD Index fell over 1% and touched its weakest level since early November. In the European morning on Thursday, the index moves sideways above 104.00.
USD/CAD fell for the second consecutive day on Wednesday as the Canadian Dollar gathered strength and continued to push lower toward 1.4300 during the Asian trading hours on Thursday. Similarly, USD/MXN declined about 1% on Wednesday before settling near 20.4000.
The ECB is widely anticipated to lower key rates by 25 basis points (bps) after the March policy meeting. Following the release of the policy statement and revised macroeconomic projections, ECB President Christine Lagarde will speak on the policy outlook and respond to questions in a press conference starting at 13:45 GMT. EUR/USD extended its impressive rally into a third consecutive day on Wednesday and continued to push higher early Thursday. The pair was last seen trading at its highest level in four months slightly above 1.0800. Eurostat will release January Retail Sales data during the European trading hours.
GBP/USD trades in a tight range at around 1.2900 after closing decisively higher on Wednesday. The pair is already up about 2.5% this week.
The data from Australia showed early Thursday that Exports increased by 1.3% on a monthly basis in January, while Imports declined by 0.3%. After rising more than 1% on Wednesday, AUD/USD stays in a consolidation phase at around 0.6350.
Following Tuesday's recovery attempt, USD/JPY turned south and lost 0.6% on Wednesday. The pair holds steady above 149.00 in the European morning on Thursday.
The improving risk mood made it difficult for XAU/USD to benefit from the selling pressure surrounding the USD on Wednesday. After closing the day virtually unchanged, Gold continues to move sideways near $2,920 early Thursday.
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.