EUR, GBP and CHF rise as Omicron hospitalisation risk fades
10:39, 14 December 2021
The euro (EUR), British pound (GBP) and Swiss franc (CHF) all recovered past sessions’ losses in European morning trading on Tuesday, following new research indicating that two doses of the Pfizer-BioNTech Covid-19 vaccine appear to have provided 70% protection against hospitalisation from Omicron in recent weeks in South Africa.
The US dollar trended 0.2% lower, with the DXY index falling to 96.12 by 11:00 GMT. The US dollar fell slightly against all major low-yielding currencies ahead of tomorrow’s critical Federal Reserve meeting, which may signal a shift toward a more hawkish attitude in the fight against inflation.
- EUR/USD rose to 1.1313 (+0.27%) by 10:30 GMT
- USD/JPY remained broadly unchanged at 113.58 (+0.02%)
- USD/CHF slid to 0.9193 (-0.35%)
- GBP/USD ticked up to 1.3236 (+0.15%)
Risk-sensitive currencies also benefitted from the broad improvement in market mood, but idiosyncratic factors continue to weigh on the commodity-related Canadian dollar (CAD) and Norwegian krone (NOK).
Central Bank of Canada revised its mandate yesterday, formally targeting a moderate overshoot of its 2% inflation target to “support maximum sustainable employment,” and CAD weakened on the news. The Norwegian government, meanwhile, announced more restrictive Covid-19 containment measures, fearing that the nation’s health systems would be overwhelmed if nothing was done.
- AUD/USD was marginally lower at 0.7124 (-0.07%)
- NZD/USD held steady at 0.6757 (+0.06%)
- USD/CAD was flat at 1.2811 (+0.05%)
- USD/NOK rose to 8.9979 (+0.28%)
Among developing currencies, the Turkish lira (TRY) is again hovering around its record lows against the dollar, while the Russian ruble (RUB) fell 0.3% on geopolitical noise over Ukraine.
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Forex Daily Matrix – 14 December 2021
At time of writing, the US Dollar Index (DXY) was at 96.14, up 0.2% on the day.
On Friday, US inflation surged to its highest level since 1991, at 4.9% year-on-year in November. Rising inflation in the United States may lead the Federal Reserve to announce an acceleration of tapering tomorrow, while simultaneously signalling a faster rate hike cycle in their new dot plot.
Today, the November PPI is expected to confirm the persistence and spread of inflationary pressures, with an increase of 0.5% month-on-month (m/m) for the headline index and 0.4% m/m for the core index.
US money markets now assign a 57% probability to a rate hike as soon as May 2022, according to CME’s latest FedWatch Tool.
US dollar (DXY) technical levels:
- 52-week high: 96.82
- 52-week low: 89.22
- 50-day moving average (one-day chart): 94.94
- 200-day moving average (one-day chart): 92.68
- 14-day Relative Strength Index (RSI) (one-day chart): 56
Chart of the day: Fed rate hike in May more likely than not
EUR/USD was last at 1.1313, up 0.3% on the day.
The euro recovered ground in London morning trading, aided by a risk-on sentiment across markets following the publication of a new research showing that two doses of a Pfizer-BioNTech vaccine can reduce hospitalisations by 70%.
On the data front, industrial production for the Euro Area rose 3.30% year-on-year in October of 2021, slightly above a forecasted 3.2% rise.
The market’s attention will also be focused this week on the European Central Bank’s upcoming meeting, but investors do not expect Frankfurt to alter its position much.
EUR/USD technical levels:
- 52-week high: 1.2349
- 52-week low: 1.1184
- 50-day moving average (one-day chart): 1.1452
- 200-day moving average (one-day chart): 1.1791
- 14-day Relative Strength Index (RSI) (one-day chart): 45
By 11:00 GMT today, the cable (GBP/USD) was trading at 1.3236, up 0.2% on the day, while EUR/GBP was 0.14% higher at 0.8546.
Sterling recovered ground amid the improving risk-on sentiment but it still remains vulnerable to domestic pandemic news flow. The UK government reintroduced restrictions including mandatory face coverings in indoor public spaces and advising people to work from home.
On the data front, UK labour market statistics for November just confirmed a solid performance. The UK unemployment rate decreased to 4.2% in the three months to October 2021, the lowest level since June 2020 and in line with market expectations. The number of people seeking unemployment benefits in the UK fell by 49,800 in November 2021, following a 14,900 reduction in October.
However, the number of employed people increased by only 149,000 quarter-on-quarter to 32.506 million in the three months to October 2021, falling short of market expectations of a rise of 228,000.
The Bank of England will meet on Thursday, but the likelihood of an interest rate hike has dropped dramatically over the past weeks, as the spread of the Omicron variety in the UK may force officials to take a wait-and-see approach by monitoring economic and inflationary consequences.
GBP/USD technical levels:
- 52-week high: 1.4248
- 52-week low: 1.3133
- 50-day moving average (one-day chart): 1.3509
- 200-day moving average (one-day chart): 1.3780
- 14-day Relative Strength Index (RSI) (one-day chart): 37
Forex Performance Heatmap – 14 December 2021
Other currency pairs (% change from previous close):
- USD/MXN -0.10%
- USD/ZAR +0.11%
- USD/TRY +2.76%
- USD/RUB +0.29%
- USD/KRW -0.19%
- USD/CNH -0.12%
- EUR/NOK +0.54%
- EUR/SEK +0.16%
- EUR/PLN -0.01%
- EUR/HUF -0.32%
Read more: Third Pfizer (PFE) vaccine neutralises Omicron, study finds
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