The US dollar marginally recouped its Friday’s losses in European morning trade, as the market digested the dismal non-farm payrolls (NFP) data and now turns its attention to Wednesday’s inflation report.
By 11:00 GMT, the DXY index, which measures the US dollar’s performance versus a basket of peers, was at 96.90, up 0.14% on the day. The dollar rose versus low-yielding currencies such as the euro and Swiss franc (CHF) but held firm against the pound, which benefited from increased prospects of another Bank of England rate rise in February.
Oil-related currencies extended their gains, with the Canadian dollar (CAD) rising 0.2% against the US dollar, following a 0.7% gain on Friday, as stronger economic data increased expectations for Bank of Canada rate hikes and Brent prices rose amid supply-side concerns in Kazakhstan and Lybia. Norwegian krone (NOK) strengthened 0.2% and the Russian ruble (RUB) was also higher this morning, up 0.6% against the dollar, as crucial US-Russian talks on Ukraine began.
The Australian dollar (AUD) rose 0.25% as coal prices continued to rise, while the New Zealand dollar (NZD) remained mostly flat as experts warned that the country’s health system could be overwhelmed within weeks by an Omicron outbreak, raising concerns about tighter restrictions.
Daily performance of major forex pairs – 10 January 2022
- EUR/USD slipped to 1.1328 (-0.27% on the day)
- USD/JPY was flat at 115.57 (+0.02%)
- USD/CHF rose to 0.9208 (+0.20%)
- GBP/USD was steady at 1.3544 (-0.01%)
- AUD/USD edged up to 0.7157 (+0.25%)
- NZD/USD edged slightly lower to 0.6774 (-0.09%)
- USD/CAD fell to 1.2620 (-0.19%)
Performance matrix of major currencies – 10 January 2022
At the time of writing, the US Dollar Index (DXY) was at 95.90, up 0.14% on the day.
The USD outperformed the majority of its G10 counterparts, except for GBP and CAD, in the first week of the year, as expectations of an early Fed tightening drove the US Treasury yield curve higher.
On the data front, non-farm payrolls increased by 199k in December, down from 249k in November and far less than the consensus estimate (450k). However, the unemployment rate fell by 0.3 percentage point to 3.9%, while the consensus projected a drop to 4.1%, and hourly wages grew 0.6% month on month (m/m), compared to a 0.4% increase forecast, indicating a tighter labour market.
This week’s focus will be on the release of the Consumer Price Index (CPI) for December, which is predicted to grow by 0.4% m/m for the headline index and 0.5% m/m 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.
US Treasury yields continued to rise overnight, with the 10-year yield hitting 1.80%, the highest level since January 2020, and the two-year yield rising to 0.90%.
Investors currently assign a 73% probability (up from 50% just a week ago) of a first Fed interest rate rise occurring in March 2022, 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): 95.75
- 200-day moving average (daily chart): 93.03
- 14-day Relative Strength Index (RSI) (daily chart): 48
Chart of the day: CAD and GBP outperformed peers in the first week of the year
EUR/USD was 0.3% lower to 1.1328 by 11:00 GMT.
On Friday, inflation flash estimates exceeded forecasts, with headline inflation climbing to 5% year on year (the highest level since July 1991) and core inflation hitting 2.6% y/y, compared to the consensus predictions of 4.9% and 2.5%, respectively.
Higher-than-expected Eurozone inflation may boost the likelihood of the ECB abandoning its ultra-accommodative monetary policy this year.
This morning, the unemployment rate in the Euro Area edged down to 7.2% in November from 7.3% in October, in line with expectations.
German Bunds sold-off in value last week, with the 10-year yield reaching -0.03%, the highest level since May 2019, although the yield differential with the US 10-year remained almost steady at 180 basis points, as Treasury yields increased accordingly.
Meanwhile, top ECB officials sent conflicting messages on the monetary policy response to inflationary pressures.
Philip Lane, the ECB’s chief economist, reaffirmed that he expected inflation to decrease in 2022, before falling slightly below goal in 2023-24. Isabel Schnabel, an ECB board member, agreed that supply shocks, such as energy, could prompt the ECB to cease looking through price rises, especially if green transitions exacerbate medium-term inflationary pressures.
EUR/USD technical levels
- 52-week high: 1.2349
- 52-week low: 1.1184
- 50-day moving average (daily chart): 1.1350
- 200-day moving average (daily chart): 1.1743
- 14-day Relative Strength Index (RSI) (daily chart): 50
Sterling outperformed the other G10 currencies in the first week of 2022, with the cable presently trading around two-month highs on expectations of increasing inflation and tighter monetary policy. Positive macro data also aided the pound last week, with the Service PMI coming in above estimates, suggesting that the recovery would continue despite the Omicron variant.
Meanwhile, according to the CME Group’s Bank Of England Watch tool, the UK money markets are pricing in an 80% possibility of another Bank of England 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): 1.3397
- 200-day moving average (one-day chart): 1.3738
- 14-day Relative Strength Index (RSI) (daily chart): 65
Forex Performance Heatmap – 10 January 2022
Other currency pairs (percentage change from previous close)
- USD/MXN +0.00%
- USD/ZAR +0.06%
- USD/TRY -0.77%
- USD/RUB -0.59%
- USD/KRW -0.12%
- USD/CNH +0.02%
- EUR/NOK -0.19%
- EUR/SEK +0.18%
- EUR/PLN -0.14%
- EUR/HUF -0.26%
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