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Forex Today: US Dollar extends rally, Gold climbs to a new all-time high

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Here is what you need to know on Friday, April 12:

The US Dollar (USD) gathers strength against its major rivals in the European session on Friday, with the US Dollar Index climbing to a fresh 2024-high above 105.50. Export Price Index and Import Price Index data for March will be featured in the US economic docket and the University of Michigan will release the preliminary Consumer Sentiment Index for April ahead of the weekend.

Mixed macroeconomic data releases from the US made it difficult for the USD to build on Wednesday's upsurge that was fuelled by strong inflation data. Hawkish comments from Federal Reserve (Fed) officials, however, helped the currency hold its ground. Meanwhile, escalating geopolitical tensions seem to be providing an additional boost to the safe-haven USD. Late Thursday, a US official said that they were expecting Iran to attack Israel and that they warned Iran against escalating the conflict in the Middle East further, per Reuters.

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 strongest against the Euro.

USD   1.40% 0.91% 0.86% 0.89% 1.08% 0.54% 1.02%
EUR -1.44%   -0.51% -0.56% -0.52% -0.34% -0.88% -0.41%
GBP -0.92% 0.51%   -0.05% -0.02% 0.16% -0.39% 0.11%
CAD -0.87% 0.55% 0.05%   0.03% 0.21% -0.33% 0.16%
AUD -0.90% 0.52% 0.02% -0.03%   0.19% -0.37% 0.11%
JPY -1.09% 0.34% -0.15% -0.21% -0.18%   -0.52% -0.05%
NZD -0.54% 0.86% 0.37% 0.32% 0.36% 0.54%   0.47%
CHF -1.04% 0.39% -0.11% -0.16% -0.13% 0.05% -0.49%  

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

Following Wednesday's decline, Gold gathered bullish momentum and gained over 1.5% on Thursday. XAU/USD continues to push higher and was last seen trading at a new record high within a touching distance of $2,400.

The European Central Bank (ECB) left its monetary policy settings unchanged as expected following the April policy meeting. Although EUR/USD managed to erase a portion of its daily losses during the American trading hours on Thursday, it came under renewed bearish pressure early Friday amid dovish comments from ECB officials. The pair was last seen trading at its lowest level since December below 1.0700.

The UK's Office for National Statistics reported on Friday that the real Gross Domestic product (GDP) expanded 0.1% on a monthly basis in February. This reading followed the 0.3% growth recorded in January and matched the market expectation. GBP/USD stays on the back foot after the data and trades at a fresh 2024-low near 1.2500.

USD/JPY stays relatively calm above 153.00 early Friday. The Japanese Yen seems to be benefiting from the souring risk mood. Additionally, investors might be refraining from betting on another leg higher in the pair on growing expectations for a Bank of Japan intervention.

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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