Daily Forex Market Report 25-Nov-2022: USD Three-Month Low, ECB to increase interest rate, GBP and EUR continue to gain

South African Rand (ZAR) amongst the top risers

USD

The dollar index weakened to a three-month low this morning.

Weaker Dollar Index - Source: Trading View

While the US was off on holiday to celebrate Thanksgiving, analysts at Deutsche Bank said the decline also reflected the further unwinding of the “risk premium buoying the greenback” – or maybe in other words, people are less worried about risk, or at least that the USD is the best means of hedging risk.

At ING Bank, analysts said a further unwinding of long dollar positioning “remains the risk, but we think the dollar is getting close to some decent support levels”.

GBP/EUR

But the pound and euro this morning are continuing their recent sideways move against their old adversary, with the EUR near five-month highs against USD, and sterling and the New Zealand dollar among those at three-month highs, with the Aussie not far off.

EUR/GBP is up 0.1% this morning at 0.8605, revived from a near one-month low after some weak but slightly more optimistic data releases from Europe that built on other encouraging numbers of late.

EUROZONE

This morning has seen a weaker German confidence survey, but stronger French and Italian number, which follows Germany’s Ifo business climate and expectations indicators surprising on the upside for the second consecutive month and coming on the heels of the better-than-expected numbers from the flash PMIs.

Minutes from latest ECB meeting showed “a few members expressed a preference for increasing the key ECB interest rates by 50 basis points” at the last meeting, but ultimately a 75bps increase was judged to be “an appropriate response in view of the protracted period of excessively high inflation and the risk that this might add to medium-term price pressures”.

Some economists expect the ECB to slow the pace of hikes to 50bps in December, following the 75bps pace in September and October, but it’s seen as a close call. In forex markets, the stand-out events over the past 24 hours were the large 75-basis-point rate hikes in Sweden and South Africa, plus the 150bp rate cut in Turkey in preparation for elections next year.

Movers and Shakers

This morning EUR/ZAR and USD/ZAR are among the top rises, with the rand giving back some gains, with EUR also climbing against both Down Under dollars.

The pound has been solid in recent days amid some hawkish rhetoric from Bank of England deputy governor and chief economist in recent days, both talking up the need for more rate rises despite the fiscally tight budget and broadening consensus of recession.

There’s not much data to watch the rest of Friday, with many looking ahead to next week when a new month starts, bringing a new round of data.

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