Daily Forex Market Report 02-Dec-2022: Euro keeps pressure on the dollar, Pound inches back as week ends

After reaching 15-week highs of 1.230 against the US dollar on Thursday, the pound has cooled off slightly while still remaining in a leading position heading into the week’s end.

As it stands, Cable is changing hands at 1.223, having dipped around 22 pips in the Asia trading window.

The pair’s cooling off aligned with tepid UK retail sales, which decreased 6.1% year on year according to this morning’s reading, marking a sixth consecutive month of falls in retail sales as the cost of living crisis and high prices continue to compress consumer budgets.

Pound enters the 2022 come stretch in a strong position against the greenback – Source: tradingview.com

Losses on the GBP/USD pair may have been exasperated further if not for a weak US Dollar Index (DXY), which has plummeted nearly 200 basis points to 104.17 since Monday.

The pound also cut back slightly against the euro this morning, with the EUR/GBP pair currently changing hands at 0.859p against an opening price of 0.858p.

UK 10-year gilt yields are sticking close to the 3.1% level, certainly an improvement on the 14-year highs experienced in October.

High-than-expected producer price inflation across the euro area pushed EUR/USD another 0.1% higher in today’s Asia session, bringing the pair to a four-month high of 1.053.

That PPI data will be used by the euro hawks to justify more jumbo interest rate hikes in the coming months.

US unemployment is expected to come in at 3.7% when the reading is released this afternoon but with no further headline readings scheduled on today’s economic calendar, price action could be relatively subdued as the week comes to a close.

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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.

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