Piero CingariIn European morning trading today, the GBP/USD exchange pair hit the 1.36 mark before slightly retracing to 1.3579, trading at two-month highs on rising expectations of the Bank of England (BoE) lifting interest rates again in early February following the December hike.
Yesterday’s early trading session in New York saw equities initially declining on expectations of US Federal Reserve’s (the Fed’s) tightening before rebounding right before the close, with the USD losing some steam.
By 13:00 GMT, the DXY index, which measures the US dollar’s performance versus a basket of peers, was flat on the day at 96.91.
The day’s key event is Fed Chair Jerome Powell’s nomination hearing before the Senate Committee on Banking, Housing, and Urban Affairs, as it may give further insight about 2022 rate rises and inflation dynamics. Powell is due to give a press conference speaking for the Federal Open Market Committee today at 14.30 EST.
Other major currencies’ performance
The Japanese yen (JPY) benefitted from risk aversion yesterday, but has since reversed its gains as Treasury yields resumed their upward path.
The Norwegian krone (NOK) is outperforming all major currencies today, as core inflation in Norway increased by 0.5 percentage points to 1.8% year-on-year in December, well above the consensus estimate at 1.4% year-on-year.
Headline inflation increased to 5.3% on the year (the highest level since 2008), boosting expectations of a faster pace of rate hikes by Norges Bank, which began initially raising benchmark rates in mid-December.
Oil prices increased slightly, with West Texas Intermediate (WTI) crude up 0.68% and Brent crude up 0.53%. The Canadian dollar (CAD) rose, while the Russian ruble (RUB) slightly softened on ongoing US–Russian talks aimed at de-escalating tensions in Ukraine.
The Australian dollar (AUD) recovered overnight thanks to improved risk sentiment and retail sales in Australia climbing at 7.3% on the month considerably above the 3.6% growth forecast.
Daily performance of major forex pairs – 11 January 2022
- EUR/USD was flat at 1.1331 (0.06% on the day)
- USD/JPY rose to 115.48 (+0.24%)
- USD/CHF held steady at 0.9265 (-0.08%)
- GBP/USD was flat at 1.3579 (+0.03%)
- AUD/USD was flat at 0.7171 (+0.04%)
- NZD/USD was unchanged at 0.6755 (+0.00%)
- USD/CAD weakened to 1.2641 (-0.29%)
- USD/NOK dropped to 8.8270 (-0.38%)
Performance matrix of major currencies – 11 January 2021
Performance matrix of major currencies as of 11 January 2021, 11:00 GMT – Credit: Capital.comUS dollar
At the time of writing, the US Dollar Index (DXY) was at 96.91, unchanged on the day.
On Friday, US labour market data sent mixed signals, with non-farm payrolls falling short of expectations (199,000 versus 450,000). However, the unemployment rate has continued edging further down to 3.9% (versus the 4.1% expected) and hourly wages growing 0.6% month-on-month (versus the expected 0.4%).
This week’s focus will be on the release of December 2021’s Consumer Price Index (CPI), which is predicted to grow by 0.4% month-on-month for the headline index and 0.5% month-on-month for the core index, owing to ongoing price rises for both goods and services. In annual terms, the two indexes are expected to increase by 7% and 5.3%, respectively – the highest rates since 1982.
Meanwhile, the US Treasury securities recorded their worst week since June 2021, with the 10-year yields reaching 1.8% before settling down to 1.75%, and the two-year yields reaching and holding at 0.9%. The two-year US–EU yield differential widened as much as 149 basis points – the highest since March 2022.
Investors’ expectation of an early Fed tightening continue to climb. Fed futures prices currently indicate a 76% probability (up from 59% just a week ago) of a first Fed interest rate rise as early as March 2022, and nearly 90 basis points of cumulative rate hikes by the end of the year, according to the CME Group FedWatch tool.
US dollar (DXY) technical levels:
- 52-week high: 96.82
- 52-week low: 89.22
- 50-day moving average (daily chart): 95.79
- 200-day moving average (daily chart): 93.05
- 14-day relative strength index (RSI) (daily chart): 49
Chart of the day: Market consensus is now pricing in almost four rate hikes in 2022
Market pricing in of Fed hikes in 2022 – Data: CME Group, Credit: Capital.comEuro
EUR/USD was steady at 1.1331 by 13:00 GMT.
Last Friday, inflation data for the eurozone surprised expectations, with the headline index hitting 5% year-on-year (the highest since July 1991) and the core reaching 2.6% year-on-year, boosting speculations of an earlier-than-expected European Central Bank (ECB) shift in monetary policy.
However, ECB chief economist Philip Lane soon calmed the waters, arguing that inflation has been largely impacted by rising energy prices and that in 2023–2024, these will be below and not above the ECB’s target.
Yesterday, data revealed the unemployment rate across the eurozone fell to 7.2% in November from 7.3% in October. This was in line with expectations of unemployment declining in Spain, France and Germany, but remaining steady in Italy.
In January, the Sentix Index, which measures investor and analyst confidence in the eurozone, climbed by 1.4 points to 14.9, slightly above the consensus forecast of 13.5.
Meanwhile, core yields in the eurozone continue to trend higher, with the German 10-year Bund rising as high as -0.03% – the highest level since May 2019.
EUR/USD technical levels:
- 52-week high: 1.2349
- 52-week low: 1.1184
- 50-day moving average (daily chart): 1.1338
- 200-day moving average (daily chart): 1.1736
- 14-day relative strength index (RSI) (daily chart): 50
British pound
The GBP/USD pair was last seen at 1.3579, hovering around its two-month highs, while EUR/GBP held steady at 0.8446, at its lowest since February 2020.
Since the start of the year, sterling has been among the best-performing G10 currencies, as traders have seemingly factored in a faster move from the BoE in hiking its policy rates this year.
Short-term gilt yields rose to their highest level since February 2019, with the two-year yield now achieving 0.83%, also reflecting the BoE’s faster pace of rate hikes.
According to the CME Group’s Bank of England Watch tool, the UK money markets are pricing in an 80% possibility of another BoE rate rise in February.
GBP/USD technical levels:
- 52-week high: 1.4248
- 52-week low: 1.3165
- 50-day moving average (one-day chart): 1.3392
- 200-day moving average (one-day chart): 1.3733
- 14-day relative strength index (RSI) (daily chart): 65
Forex performance heatmap – 11 January 2022
Forex performance heatmap as of 11 January 2022, 11.00 GMT – Credit: Capital.comOther currency pairs (percentage change from previous close)
- USD/MXN +0.14%
- USD/ZAR -0.02%
- USD/TRY +0.24%
- USD/RUB +0.23%
- USD/KRW -0.37%
- USD/CNH -0.00%
- EUR/NOK -0.32%
- EUR/SEK -0.03%
- EUR/PLN +0.11%
- EUR/HUF -0.32%
Read more: Top US banks expect four Fed hikes and quantitative tightening in 2022
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