Setbacks for US dollar as Turkish lira rides a roller coaster
09:42, 21 December 2021
The dollar softened against other major currencies on Tuesday morning trading in Europe, following yesterday’s risk-off session marked by growing fears over Omicron and uncertainty over the future of President Biden’s spending plans.
The DXY index, which measures the US dollar against a basket of six major currencies, was broadly flat at 96.35 (-0.2% on the day) by 11:00 GMT (UT).
- EUR/USD edged up to 1.1294 (+0.17%)
- USD/JPY held steady at 113.64 (0.05%)
- USD/CHF was flat at 0.9205 (-0.05%)
- GBP/USD rose to 1.3254 (+0.36%)
The Turkish lira emerged from the ashes of a currency crisis, with USD/TRY down by nearly 30% compared to yesterday, after President Recep Tayyip Erdoğan presented a new plan to defend local currency deposits against depreciation. President Erdoğan also announced a 10% reduction in withholding tax on dividend payments made by companies.
Risk sentiment improved towards high-beta and commodity currencies after yesterday’s sell-off. The Australian (AUD) and New Zealand (NZD) dollars strengthened against the USD, and the Norwegian krone (NOK) also rebounded.
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- AUD/USD edged up to 0.7127 (+0.25%)
- NZD/USD climbed to 0.6749 (+0.54%)
- USD/CAD was unchanged at 1.2933 (-0.06%)
- USD/NOK declined to 9.0053 (-0.39%)
Forex Daily Matrix – 21 December 2021
At time of writing, the US Dollar Index (DXY) was at 96.38, up 0.5% on the day.
The dollar took a breather after Democratic Senator Joe Manchin of West Virginia announced his withdrawal from President Biden’s Build Back Better Act on Sunday, effectively undermining the $1.75trn tax and spending proposal that incorporates the Democrats’ core domestic policy priorities.
Goldman Sachs analysts cut their growth predictions for the United States for 2022 yesterday, citing a more negative fiscal impact than projected. The bank’s experts now estimate GDP growth of 2% in the first quarter of 2022, a 3% increase in the second quarter and a 2.75% rise in the third – down from 3%, 3.5% and 3% growth, respectively.
The Omicron variant continues to spread rapidly in the US, now accounting for 73% of all sequenced Covid-19 cases, up from around 3% last week. President Biden will talk later today about the country’s pandemic response in light of the escalating number of Omicron cases.
US dollar (DXY) technical levels:
- 52-week high: 96.82
- 52-week low: 89.22
- 50-day moving average (one-day chart): 95.16
- 200-day moving average (one-day chart): 92.80
- 14-day Relative Strength Index (RSI) (one-day chart): 56
Chart of the day: Turkish lira on a rollercoaster ride
By 11:00 GMT today, the cable (GBP/USD) was trading at 1.1294, up 0.4% on the day, while EUR/GBP was 0.2% lower at 0.8519.
Although the Bank of England surprised markets last week by tightening monetary policy, the pound was pulled down by global risk aversion as a result of the spread of Omicron and domestic political headlines.
Prime Minister Boris Johnson is embroiled in a battle with his own cabinet about enforcing new coronavirus restrictions as Christmas approaches, while yesterday health secretary Sajid Javid refused to rule out further meaures being implemented before Christmas.
GBP/USD technical levels:
- 52-week high: 1.4248
- 52-week low: 1.3133
- 50-day moving average (one-day chart): 1.3464
- 200-day moving average (one-day chart): 1.3757
- 14-day Relative Strength Index (RSI) (one-day chart): 44
EUR/USD was last at 1.1262, down 0.4% on the day.
The economic outlook in the eurozone remain clouded by recent pandemic developments. Consumer confidence in Germany, according to the GfK survey, fell more than expected to -6.8 points (the lowest since June), down from -1.8 previously.
This afternoon, the EU Commission will publish preliminary data on household morale in the euro area for December, which are likely to indicate a similar decline in response to the spike in infections and the consequences of energy price hikes.
The Bundesbank indicated that the German economy may fall this quarter as a result of the increase in Covid-19 infections. The Netherlands has already implemented a Christmas lockdown, and EU Commissioner Ursula von der Leyen has warned that by mid-January, the Omicron strain might be dominant in Europe.
EUR/USD technical levels:
- 52-week high: 1.2349
- 52-week low: 1.1184
- 50-day moving average (one-day chart): 1.1425
- 200-day moving average (one-day chart): 1.1774
- 14-day Relative Strength Index (RSI) (one-day chart): 46
Forex Performance Heatmap – 21 December 2021
Other currency pairs (% change from previous close):
- USD/MXN +0.14%
- USD/ZAR +0.31%
- USD/TRY -9.07%
- USD/RUB -0.20%
- USD/KRW +0.25%
- USD/CNH -0.04%
- EUR/NOK -0.22%
- EUR/SEK +0.08%
- EUR/PLN -0.03%
- EUR/HUF -0.06%
Read more: Turkish lira slumps to a new low after interest rate cut
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