A 7% year-on-year rise in the US consumer price index (CPI) in December 2021, the largest since June 1982, but in line with expectations, stunned the US dollar yesterday, which fell to levels not seen since November last year versus all major currencies.
Even prominent Fed officials’ “hawkish” remarks, with Vice President Leal Brainard expressing worry about high inflation and James Bullard hinting at four rate hikes in 2022, were insufficient to rescue the dollar at the New York close, as markets had already priced in four raises in 2022.
The DXY index traded at 94.77 at 11.00 GMT on January 13, down 0.2% on the day. Both the pound and the euro extended their rally amid a widespread USD weakness. Domestic political turmoil – with Prime Minister Johnson under greater pressure over his apologies for Downing Street’s Covid parties and some within the Tory party asking for his resignation – has failed to derail the sterling’s race so far.
High-beta currencies such as the Australian dollar (AUD) and the New Zealand dollar (NZD) were the outperformer among G10 currencies today, rising 0.3% and 0.5%, respectively, against the dollar, after a nearly 1% rise yesterday.
Elsewhere, the Russian ruble (RUB) was slightly weaker as headline risks remain elevated, with the United States Senate set to vote today on a bill sanctioning the Nord Stream 2 pipeline. The Turkish lira (TRY) is once again under pressure, tumbling 3% on the day, amid persistent worries over inflation and an unorthodox monetary policy.
Daily performance of major forex pairs – 13 January 2022
- EUR/USD tilted up to 1.1459 (+0.15% on the day)
- GBP/USD rose to 1.3742 (+0.30%)
- USD/JPY edged slightly down to 114.52 (-0.15%)
- USD/CHF slid to 0.9235 (-0.15%)
- AUD/USD edged up to 0.7306 (+0.30%)
- NZD/USD strengthened to 0.6879 (+0.51%)
- USD/CAD dipped to 1.2480 (-0.22%)
- USD/NOK was flat at 8.6596 (-0.06%)
Performance matrix of major currencies – 13 January 2022
At the time of writing, the US Dollar Index (DXY) was at 94.77, down 0.2% on the day.
Consumer price inflation in the US reached the highest level in almost 40 years. Core CPI inflation, which excludes food and energy prices, rose by 0.6% points from a month earlier, to 5.5% year-on-year in December, slightly above expectations (5.4%). Headline inflation rose by 0.2%-points to 7.0% year-on-year, owing to broad-based pressures across the items of the index.
Yesterday, Fed members took a hawkish tone, with vice-chair Leal Brainard saying that slowing the present excessively high inflation is the Fed’s most important task; James Bullard hinting at four rate rises in 2022; and Mary Daly indicating that rate hikes may come as early as March.
Long-term US Treasury yields held steady, with the 10-year yield at 1.75%, while short-term yields ticked slightly up, with the 2-year hovering around 0.91%.
December’s producer price index (PPI) is the day’s key release, although its influence should be limited after yesterday’s CPI.
Investors’ expectations on March’s rate hike rose to 85% likelihood, from 75% last week, according to the CME Group FedWatch tool. The market is now pricing in slightly less than four cumulative hikes by the end of the year.
US dollar (DXY) technical levels
- 52-week high: 96.88
- 52-week low: 89.49
- 50-day moving average (1-day chart): 95.82
- 200-day moving average (1-day chart): 93.08
- 14-day Relative Strength Index (RSI) (1-day chart): 34
Chart of the day: US CPI rose hits 40-year highs in December 2021
EUR/USD rose to 1.1459 by 11:00 GMT, up 0.15%, after gaining 0.7% yesterday.
The euro broke the resistance of 1.1380 and extended towards 1.1470, a level that had not been touched since last November.
The EUR was also helped by an unexpected positive surprise in industrial output data for November, which increased by 2.3% month on month (vs. 0.2% consensus).
Earlier this week, European Central Bank (ECB) president Christine Lagarde emphasised that citizens should have confidence in the ECB’s commitment to the price stability mission, which is critical for a robust anchoring of inflation expectations and currency confidence.
EUR/USD technical levels
- 52-week high: 1.2345
- 52-week low: 1.1184
- 50-day moving average (1-day chart): 1.1337
- 200-day moving average (1-day chart): 1.1735
- 14-day Relative Strength Index (RSI) (1-day chart): 62
The domestic political turbulence that puts British prime minister Boris Johnson under pressure due to the party in Downing Street in May 2020 in the middle of the pandemic problem, is not particularly affecting the performance of the pound so far.
The prime minister apologised at yesterday’s Parliament session, but Conservative outrage is growing, with some demanding him to quit.
On the Brexit front, UK Foreign Secretary Liz Truss will host European Commission vice president Maros Sefcovic at her house in Kent for talks on fixing the Northern Ireland Protocol and finding a solution to maintain the Good Friday agreement.
The market is now fully discounting a Bank of England’s rate hike in February, according to CME Group’s Bank of England Watch tool.
GBP/USD technical levels
- 52-week high: 1.4248
- 52-week low: 1.3165
- 50-day moving average (1-day chart): 1.3395
- 200-day moving average (1-day chart): 1.3736
- 14-day Relative Strength Index (RSI) (1-day chart): 74
Forex Performance Heatmap – 13 January 2022
Daily performance of EM currencies
- USD/MXN +0.20%
- USD/ZAR +0.13%
- USD/TRY +3.00%
- USD/RUB +0.31%
- USD/KRW -0.12%
- USD/CNH +0.05%
- EUR/PLN +0.08%
- EUR/HUF +0.62%
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