GBP and risky currencies rise as Omicron fears subside
11:30, 23 December 2021
Investor sentiment surged on risky assets, such as equities, commodities and high-beta currencies, while it softened on the dollar and yen, as a new UK study suggested the Omicron Covid-19 variant has a lower risk of serious sickness compared with prior strains. Meanwhile, the US Food and Drug Administration granted the emergency at-home use of the first Pfizer’s Covid-19 pill.
The US dollar index (DXY) traded around 96 by 10:30 GMT, flat on the day, after falling about 0.5% yesterday. The British pound (GBP) was the strongest among major currencies, up 0.5% against the dollar, while the euro (EUR) remained broadly unchanged and the safe haven Japanese yen (JPY) edged lower.
- EUR/USD was flat at 1.1324 (0.00%)
- USD/JPY rose to 114.32 (+0.18%)
- USD/CHF was unchanged at 0.9200 (+0.02%)
- GBP/USD climbed to 1.3420 (+0.54%)
Risk-sensitive currencies strengthened further, with the Australian and New Zealand dollar (NZD) both up about 0.3% against the US dollar. Oil-linked currencies, such as the Norwegian krone (NOK) and the Canadian dollar (CAD), also rose, as Brent crude hovered around $75 a barrel. Russian ruble (RUB) improved further and was little affected by mounting fears of invasion to Ukraine, as Russia continues to build up forces along the border.
- AUD/USD rose to 0.7238 (+0.35%)
- NZD/USD strengthened to 0.6833 (+0.40%)
- USD/CAD slid to 1.2818 (-0.12%)
- USD/NOK weakened to 8.8514 (-0.23%)
- USD/RUB slipped to 73.36 (-0.20%)
Elsewhere, in Eastern Europe, the Czech central bank raised interested rates by another 100 basis points to 3.75%, bolstering the Czech koruna (CZK) to a 0.7% gain against the euro yesterday. Meanwhile, the Turkish lira's trend continued to strenghten, with USD/TRY down 3.6% today, after falling about 35% since Turkey’s President Recep Tayyip Erdoğan presented new economic measures.
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Forex Daily Matrix – 23 December 2021
At the time of writing, the US Dollar Index (DXY) was at 96, flat on the day.
Data-wise, the Conference Board’s Consumer Confidence Index climbed 3.9 points to 115.8 in December, above forecasts (111), indicating optimism about the outlook, with more consumers planning to buy cars and houses.
On the political front, the White House said that it is continuing negotiations with Senator Joe Manchin on the Build Back Better bill, renewing hopes for fiscal stimulus.
There are several data sets to be released today. Durable goods orders are expected to expand by 1.1% month-on-month (m/m) in November, after a -0.4% m/m decline in October. Personal expenditure is predicted to increase by 0.6% m/m in November, while personal income is likely to grow by 0.5% m/m.
The yield on the 2-year Note returned to 0.68%, while the 10-year yield recovered to 1.47%. Meanwhile, investors have anticipated their expectations for the first interest rate rise as early as March 2022 in recent weeks. According to CME Group’s latest FedWatch Tool, US money markets now expect a 53% likelihood of a rate rise at the Federal Reserve’s 16 March 2022 meeting, up from 39% a week ago.
US dollar (DXY) technical levels
- 52-week high: 96.82
- 52-week low: 89.22
- 50-day moving average (one-day chart): 95.23
- 200-day moving average (one-day chart): 92.85
- 14-day Relative Strength Index (RSI) (one-day chart): 51
Chart of the day: Fed hiking rates in March 2022 more likely than not
EUR/USD was flat at 1.1324, by 10:30 GMT.
More reassuring news about the severity of Omicron infection and some hawkish noise from European Central Bank (ECB) members have supported the euro in recent sessions.
Governing council member Robert Holzmann said yesterday that in “extreme” and “data-driven” cases, the ECB could stop net bond purchases already next year, paving the way for a rate hike that could occur in late 2022 or early 2023.
Meanwhile, European governments are tightening restrictions in an attempt to halt the “fifth wave” of Covid-19. Germany restricted private meetings to ten people and shut nightclubs, Spain stated that mask wearing will once again be mandatory outside, and the Netherlands returned to a statewide lockdown on Sunday. Today, the Italian government is set to announce more measures, after infections reached their highest level yesterday since November 2020.
EUR/USD technical levels
- 52-week high:1.2349
- 52-week low:1.1184
- 50-day moving average (one-day chart):1.1421
- 200-day moving average (one-day chart):1.1772
- 14-day Relative Strength Index (RSI) (one-day chart): 50
The cable (GBP/USD) was last seen at 1.3420, up 0.5% on the day, and EUR/GBP was 0.5% lower at 0.8438.
Despite daily Covid-19 cases topping 100,000 for the first time on Wednesday, sentiment on sterling improved as a recent study from Imperial College London found that the Omicron variant carries a lower risk of hospitalisation – ranging between 20% to 45% – compared with Delta variant infections.
GBP/USD technical levels
- 52-week high: 1.4248
- 52-week low: 1.3165
- 50-day moving average (one-day chart): 1.3461
- 200-day moving average (one-day chart): 1.3757
- 14-day Relative Strength Index (RSI) (one-day chart): 57
Forex Performance Heatmap – 23 December 2021
Other currency pairs (percentage change from previous close)
- USD/MXN +0.13%
- USD/ZAR +0.43%
- USD/TRY -3.9%
- USD/RUB -0.18%
- USD/KRW -0.33%
- USD/CNH -0.03%
- EUR/NOK -0.21%
- EUR/SEK +0.44%
- EUR/PLN +0.13%
- EUR/HUF +0.43%
Read more: 5 forex themes for 2022: King dollar’s reign may extend
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