DXY weakens as Fed rhetoric shifts, EUR gains on inflation
10:19, 30 November 2021
US dollar (DXY) fell to 95.68 (-0.5%) level in London midday trading, as Fed chair Jerome Powell said yesterday that Omicron poses downside risks to the US economy and more uncertainty around the inflation outlook.
The euro (EUR) was also buoyed by Powell’s comments, as market expectations for quicker US rate rises in 2022 have softened recently, lessening the Fed-ECB (European Central Bank) monetary policy gap. Additionally, this morning, the inflation rate in the euro area jumped to 4.9% year-on-year in November, hitting a new 30-year high, well above market expectations of a 4.5% rise. EUR/USD gained 0.6% to 1.1360 by 10:30 GMT.
A weaker US dollar also helped the British pound (GBP) to recover to 1.3362, up 0.3% on the day.
Commodity-related currencies took the biggest hit on worries of a new era of movement restrictions, as the World Health Organization (WHO) stated that the global threat from the Omicron Covid-19 strain was “very high”. The Canadian dollar (CAD) and the Norwegian krone (NOK) lost 0.4% versus the US dollar. The Australian dollar (AUD) and the New Zealand dollar (NZD) retraced 0.2% and 0.1% down, respectively, against the greenback.
Emerging market currencies traded in a mixed fashion, with the South African rand (ZAR) up 0.2% on expectations of lower for longer US interest rates, while the oil-linked Russian ruble (RUB) fell 0.8% amid lower crude prices.
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Forex Daily Matrix – 30 November 2021
The US Dollar Index (DXY) was last at 95.68, down 0.5% on the day.
DXY fell 1.4% from its year-to-date highs, as speculators tempered their expectations for a quicker pace of Fed rate rises next year following the discovery of the new Omicron variant.
According to the CME FedWatch Tool, the probability for a rate hike in May 2022 has decreased to 24% from a 54% last Thursday.
Yields in the Treasury market fell accordingly, with the 10-year now yielding 1.42%, down from 1.7% last Thursday, and the 2-year yielding 0.45%, down from 0.69% last week.
In his first public remarks on the Omicron variant yesterday, US Fed chair Powell stated that it poses dangers to both sides of the central bank’s mandate to meet inflation and maximum employment targets. Today, he will testify before the Senate Banking Committee hearing alongside Treasury Secretary Janet Yellen.
US dollar (DXY) technical levels
- 52-week high: 96.52
- 52-week low: 89.212
- 50-day moving average (1-day chart): 95.47
- 200-day moving average (1-day chart): 92.44
- 14-day Relative Strength Index (RSI) (1-day chart): 55.01
Chart of the day: Markets slashes 2022 rate hike expectations amid Omicron’s economic threats
EUR/USD was last at 1.1360, up 0.6% on the day.
Today, the euro area inflation rate increased to 4. 9% year-on-year in November, a fresh 30-year high and well beyond market projections of a 4.5% increase. Core inflation – which excludes energy and food – also exceeded forecasts, coming in at 2.6% year on year (vs 2.3%).
Yesterday, ECB Board Executive Member Isabel Schnabel downplayed euro area inflation fears by saying that November will prove to be the peak, even if risks are tilted to the upside.
EUR/USD technical levels:
- 52-week high: 1.2349
- 52-week low: 1.1200
- 50-day moving average (1-day chart): 1.1532
- 200-day moving average (1-day chart): 1.1832
- 14-day Relative Strength Index (RSI) (1-day chart): 46.60
Cable (GBP/USD) was last at 1.3362 by 10:30 GMT, up 0.3% on the day.
The British pound suffered losses in recent days as investors reduced their risk appetite in response to the Omicron variant. Overnight, the sterling rebounded as the US dollar softened and US rate hikes expectation dropped. Still, the new variant may now add more uncertainty around a potential December hike by the Bank of England (BoE).
Today, the macro agenda is devoid of data and investors await tomorrow’s November Manufacturing PMI and Friday’s Services PMI.
GBP/USD technical levels:
- 52-week high: 1.4248
- 52-week low: 1.3133
- 50-day moving average (1-day chart): 1.3578
- 200-day moving average (1-day chart): 1.3815
- 14-day Relative Strength Index (RSI) (1-day chart): 38.46
Forex Performance Heatmap – 30 November 2021
Other currency pairs (% change from previous close)
- USD/JPY -0.60%
- USD/CHF -0.57%
- USD/CAD +0.35%
- AUD/USD -0.15%
- NZD/USD -0.03%
- USD/MXN -0.02%
- USD/ZAR -0.17%
- USD/TRY +0.77%
- USD/RUB +0.71%
- EUR/NOK +0.97%
- EUR/SEK +0.40%
- EUR/PLN -0.06%
- EUR/HUF -0.33%
Markets in this article