Safe havens rise, riskier currencies fall and TRY plummets
09:06, 20 December 2021
Safe-haven currencies such as the Japanese yen (JPY) and the Swiss franc (CHF) rallied in London early trading on Monday, as market risk appetite was dampened by mounting concern about the economic impact from the Omicron variant at a time when major central banks are turning more hawkish to tackle inflation.
The US dollar gained ground against the British pound (GBP), but softened versus the euro and the yen. The US Dollar Index, which measures the US dollar against a basket of six major currencies, was broadly flat at 96.55 down (-0.05% on the day) by 09.30am GMT.
- EUR/USD edged up to 1.1262 (+0.20%)
- USD/JPY declined to 113.45 (-0.20%)
- USD/CHF was flat at 0.9235 (-0.02%)
- GBP/USD dived to 1.3181 (-0.46%).
Worsening risk sentiment weighed on commodity currencies such as the Canadian dollar (CAD) and Norwegian krone (NOK) as well as on high-beta Australian (AUD) and New Zealand (NZD) dollars.
- AUD/USD plunged to 0.7088 (-0.51%)
- NZD/USD dropped to 0.6708 (-0.43%)
- USD/CAD rose to 1.2929 (+0.33%)
- USD/NOK climbed to 9.1130 (+0.78%).
Meanwhile, the Turkish lira continues to plummet, falling over 6% today, as Turkish president Recep Tayyip Erdogan committed to pursue interest rate cuts following the Central Bank’s rate cut last week. USD/TRY has risen by 26% in the last week alone and by 135% year-to-date.
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Forex Daily Matrix – 20 December 2021
Forex Daily Matrix as of 20 December 2021, 09:30 GMT – Credit: Capital.comUS dollar
At time of writing, the US Dollar Index (DXY) was at 96.55, unchanged on the day.
Last week, the Fed announced that the pace of tapering will be increased to $30bn per month from $15bn. Furthermore, Fed members revised their new interest rate projections, with a median preference for three rises in 2022.
Federal Reserve member Christopher Waller said on Friday that an interest rate rise will be needed “shortly after” the conclusion of bond purchases in March, and that the US central bank should start cutting its bond holdings as early as the summer to combat inflation.
In terms of data, industrial output increased by 0.5% month over month in November, slightly less than the 0.6% expectation and following a 1.7% gain the month before. Last week, initial jobless claims increased by 18,000 to 206,000, somewhat more than the consensus of 200,000, but the four-week average declined by 19,000 to 217,000, indicating that the labour market is improving.
This week, the market will be focusing on the final Q3 GDP and personal consumption expenditures figures from the United States.
US dollar (DXY) technical levels:
- 52-week high: 96.82
- 52-week low: 89.22
- 50-day moving average (one-day chart): 95.12
- 200-day moving average (one-day chart): 92.78
- 14-day Relative Strength Index (RSI) (one-day chart): 60.
Chart of the day: Omicron is now rising fast in advanced economies
Share of Omicron variant in all analysed sequences in the preceding two weeks – Credit: Our World in DataBritish pound
Risk aversion sentiment weighed on the pound this morning. By 09:30 GMT, the cable (GBP/USD) was trading at 1.3181, down 0.5% on the day, while EUR/GBP was 0.7% lower at 0.8542.
The Bank of England (BoE) surprised the market last week by increasing its policy rate by 15 basis points to 0.25% in an 8-1 vote. Additionally, the BoE underlined the need to raise interest rates in the coming months in order to sustainably bring Consumer Price Index (CPI) inflation to the 2% objective.
There are no economic announcements for the UK today, but the focus will be on the fourth-quarter GDP, current account, and business investment figures, which will be revealed on Wednesday.
Meanwhile, the virus is rapidly spreading as a result of the Omicron variant, and the government is facing new allegations of wrongdoing. On Sunday, 12,000 more confirmed cases of the fast-spreading Omicron strain were recorded, prompting London mayor Sadiq Khan to declare a “major incident” to relieve pressure on the capital’s hospitals.
The Guardian published photos of the British prime minister in the Downing Street garden, next to his wife, enjoying wine and cheese, surrounded by several staff members who did not respect the social distancing rules during the May 2020 lockdown. This followed last week’s denials by the prime minister’s spokespeople of rumours of a social event in Downing Street.
GBP/USD technical levels:
- 52-week high: 1.4248
- 52-week low: 1.3133
- 50-day moving average (one-day chart): 1.3470
- 200-day moving average (one-day chart): 1.3760
- 14-day Relative Strength Index (RSI) (one-day chart): 37.
Euro
EUR/USD was last at 1.1262, up 0.2% on the day.
The European Central Bank (ECB) announced last week that it will stop net asset purchases under the Pandemic Emergency Purchase Programme (PEPP) at the end of March 2022, as market participants expected, but that Asset Purchase Programme (APP) purchases will be temporarily increased from €20bn to €40bn in Q2 and €30bn in Q3.
The ECB has maintained a rather dovish approach overall, despite macroeconomic projections for the euro area now foreseeing inflation averaging 3.2% in 2022.
On the data front, the deteriorating pandemic scenario is wreaking havoc for consumer-related businesses. In December, Germany’s Ifo Business Climate Index slid 1.9 points to 94.7, below the average forecast of 95.3. The Omicron wave continues to spread rapidly throughout the European Union, with the Netherlands declaring a new lockdown in an attempt to contain infection.
EUR/USD technical levels:
- 52-week high: 1.2349
- 52-week low: 1.1184
- 50-day moving average (one-day chart): 1.1417
- 200-day moving average (one-day chart): 1.1781
- 14-day Relative Strength Index (RSI) (one-day chart): 43.
Forex Performance Heatmap – 20 December 2021
Forex Performance Heatmap as of 20 December 2021, 09:40 GMT – Credit: Capital.comOther currency pairs (% change from previous close):
- USD/MXN +0.29%
- USD/ZAR -0.05%
- USD/TRY +6.5%
- USD/RUB +0.24%
- USD/KRW +0.39%
- USD/CNH +0.02%
- EUR/NOK +1.13%
- EUR/SEK +0.52%
- EUR/PLN +0.20%
- EUR/HUF -0.06%.