Canada prepares for year-end inflation
Share
Daily Forex Market Report 21-Dec-2022: Canada prepares for year-end inflation.
The pound maintains sideways trade with the US Dollar
Cable brought the Tuesday session to a net positive close at 1.218 but has shed around 35 pips this morning, bringing the pair to 1.215.
It looks to be the fifth straight sideways trade for the par leading up to the Christmas break, though with both UK and US gross domestic product figures due for a final reading on Thursday, we could see a spurt of activity before the week is done.
Any surprises left for GBP/USD this year? – Source: capital.com
Contractions are expected to appear on both sides of the Atlantic, but a hotter reading for the UK could boost Sterling upside if traders begin pondering a more restricting Bank of England strategy in the new year.
EUR/GBP saw a reversal in yesterday’s closing hours, having failed at the intraday high of 87.70p to close at a softer 87.16p.
The euro has since gained on the pound in today’s Asia trading window and is currently changing hands for 87.30p
Against the greenback, the euro has maintained the upper hand throughout the first half of the week.
Another 0.12% was added to the EUR/USD pair in the Tuesday session to close at 1.062, where it has since remained.
Elsewhere on the economic calendar, the Bank of Canada will read its final inflation rate this afternoon. Forecasters expect an easing off of 0.2%, having remained unchanged at 6.9% last month.
GBP/CAD has been cutting a bearish figure for the past week- the pair opened Monday at 1.664 and has since dipped to 1.656.
How to manage FX Risk/Exposure?
Understanding your FX risk and exposure is paramount to your bottom line. At Currency Solutions our dedicated team of experts can help you manage and understand you exposure or risk.
Employment data also failed to impress, while the goods trade balance widened its deficit more than expected.
As such, Federal Reserve chair signalled a slower pace of interest rate hikes in the months to come.
"It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down,” said Powell, though he did note that the terminal rate could be "somewhat higher" than the 4.6% indicated by in the September projections.
EUR/GBP closed the Wednesday session at .863, around 12 basis points below the intraday high, though the euro has the slight upper hand this morning having added a few pips.
Yesterday’s EU headline inflation data came in at a flat 10% against a 10.3% forecast, though that figure is still unacceptable high given the 2% target, so excessive rate hikes are likely to stay on the agenda in the coming months.
Combined with Powell’s dovish overtures, EUR/USD jumped a full percentage point to 1.042 yesterday, and continued to rally another 0.33% to 1.045 in today’s Asia window.
What does FX Risk/Exposure mean?
There are three types of foreign exchange exposure companies face:
- Economic exposure
- Conversion exposure
- Transaction exposure
In short, FX/forex (foreign Exchange) exposure means the risk that an individual or company takes when executing transactions in foreign currencies.
If a business is looking to make transactions globally or in multiple currencies, it's important that they first identify their exposure to risk in order to put a calculated risk management strategy in place.
FX Risk/Exposure Management - How does it work?
Volatile currency markets can have a huge impact on your profits.
Let say that you set a 2021 price for a product, bought in USD including a 5% profit margin, based on the exchange rate when the pound was strongest.
When the pound weakened, your profit margin would soon erode, and leave you with -2.5% profit - based on the same price, from stock bought at the dollar’s peak.
This fluctuation in price could force you to either absorb the loss or increase your prices, with the knock-on effect of untenable prices in your already competitive market.
We are a payment solutions provider with over 20 years’ experience and expertise in foreign exchange payments Our services inlcude but are not limited to:
- Hedging and FX Strategies
- Best rates for Spot trades
- vIBAN set up
- E-commerce solutions
We know that it can be time-consuming and challenging to keep up with the innumerable ongoing events that continuously affect the global market mood.
Click here for an instant quote or contact us for a free foreign exchange health check, guaranteed to save you money.
