EUR softened on lockdown fears, USD buoyed by Fed minutes
10:02, 25 November 2021
The euro suffered another session of losses yesterday, as lockdown fears increased after new Covid-19 cases in Germany rose by a record 75,961 on the day and cumulative deaths exceeded 100,000.
Meanwhile, political parties in Germany struck an agreement to establish a new government, led by SPD leader Olaf Scholz.
EUR/USD yesterday dipped below 1.12, around year-to-date lows, before edging higher to 1.1222 (+0.2% on the day) at 10:00 GMT.
The US dollar (DXY) continues to be supported by stronger-than-expected US data, as well as risks of a faster pace of policy normalisation, as Fed minutes revealed that members are increasingly worried about inflation. DXY hovered around 96.65, close to its high-to-date highs.
The British pound yesterday softened amid the broader strength of the US dollar, with GBP/USD trading at 1.333, unchanged on the day.
The Japanese yen was dragged further down by rising Treasury yields, with USD/JPY jumping to 115.40, hitting a fresh year-to-date high.
The New Zealand dollar (NZD) retraced to 0.6854 (-0.3% on the day) against the US dollar, the lowest level since August, due to a smaller than expected rate hike by the Reserve Bank of New Zealand (RBNZ).
Elsewhere, emerging market currencies were under pressure, with the Mexican peso (MXN) down almost 2% following rising market uncertainties after the appointment of a new Banxico governor.
Meanwhile, the South African rand (ZAR) hit 15.97 against the dollar, the lowest level in more than a year, before falling to 15.85 this morning.
The Turkish lira (TRY) surged 5.6% yesterday after losing over a third of its value over the past month, following a meeting between Erdogan and Sheikh Mohammed bin Zayed al-Nahyan, the crown prince of Abu Dhabi, to boost bilateral ties.
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Forex daily matrix – 24 November 2021
Forex daily matrix as of 24 November 2021, 10:00 GMT – Credit: Capital.comUS dollar
The US Dollar Index (DXY) was last at 96.6, near year-to-date highs, as macro data continue to suggest a quick recovery in the US economy and more Fed members now justify a higher tapering pace.
Federal Reserve Open Market Committee (FOMC) minutes released yesterday suggest some members want to slow down purchases by more than $15bn per month, as inflation may be more persistent than previously thought.
On the data front, real personal consumption rose by 0.7% month-on-month (MoM) in October, exceeding expectations (0.5%). Core Personal Consumption Expenditure (PCE) inflation – the Fed’s preferred gauge about inflation in the US economy – increased from 3.7% year-on-year (YoY) in September to 4.1% YoY in October, hitting its highest level in 30 years.
Meanwhile, the labour market continues to improve as initial jobless claims fell by 71,000 to 199,000 last week, far less than consensus estimate (260,000).
Lastly, third-quarter gross domestic product (GDP) was revised upward to 5.9% quarter-on-quarter (QoQ) annualised rate for the secondary print from a previous print of 5.7% QoQ.
Meanwhile, investors have anticipated expectations of the Federal Reserve’s first interest rate hike. Money markets now suggest that a rate hike as early as May next year is more likely (53%) than not (47%), compared with a 29% probability just a week ago.
Today, markets are closed for the Thanksgiving public holiday and the economic calendar is empty.
US dollar (DXY) technical levels:
- 52-week high: 96.85
- 52-week low: 89.212
- 50-day moving average (1-day chart): 94.30
- 200-day moving average (1-day chart): 92.35
- 14-day Relative Strength Index (RSI) (1-day chart): 71.64
Chart of the day: Markets now target May 2022 as the Fed’s first rate hike
Target rate probabilities for 4 May 2022 Fed Meeting as of 25 November 2021 – Data: CME FedWatch Tool, Credit: Capital.comEuro
The euro was last at 1.1223 against the US dollar, up 0.2% on the day.
This morning, the GfK Consumer Climate Indicator in Germany fell to -1.6 points, below a market expectation of -0.5 points and Germany GDP growth rate increased 1.7% QoQ slightly below 1.8% in the preliminary estimate.
On the political front, the leaders of the Social Democrats, Greens and Liberal Democrats have reached an agreement for the formation of the new government in Germany. The new Chancellor will be Olaf Scholz of the SPD, while the finance minister will be the Liberal, Christian Lindner.
Among the main measures, the new executive wants to promote the increase in the minimum hourly wage to €12 (currently at €9.60) and a commitment to decarbonise the economy by 2030.
Meanwhile, Covid-19 continues to hit the newswires. Yesterday Germany recorded the highest number of new daily cases of Covid-19 (over 75,000) and the total death toll exceeded 100,000, fuelling concerns on new lockdowns.
EUR/USD technical levels:
- 52-week high: 1.2349
- 52-week low: 1.1200
- 50-day moving average (1-day chart): 1.1560
- 200-day moving average (1-day chart): 1.1845
- 14-day Relative Strength Index (RSI) (1-day chart): 28.86
British pound
The British pound was last at 1.3326 against the US dollar (GBP/USD) at 10:00 GMT, unchanged on the day.
Bank of England (BoE) Governor Andrew Bailey and Monetary Policy committee member Jonathan Haskel will be again speaking today.
On the Brexit front, the new German administration has warned Boris Johnson not to breach the Northern Ireland agreement with the EU in the ongoing dispute over EU customs checks on British goods bound for Northern Ireland. UK and Unionist politicians have accused the EU itself of undermining the agreement by carrying out unnecessary checks that are increasing tensions in the province.
GBP/USD technical levels:
- 52-week high: 1.4248
- 52-week low: 1.3133
- 50-day moving average (1-day chart): 1.3806
- 200-day moving average (1-day chart): 1.3825
- 14-day Relative Strength Index (RSI) (1-day chart): 33.59
Forex performance heatmap – 25 November 2021
Forex performance heatmap as of 25 November 2021, 10:30 GMT – Credit: Capital.com