EURO loses ground against US Dollar
Share
Daily Forex Market Report 3-Jan-2023: EURO loses ground against US Dollar
Forex markets started 2023 in a muted fashion.
Cable continued to trade sideways on Monday as we entered the first trading session of 2023, having opened at 1.208 and closed 28 pips down at 1.206, where it has stayed in this morning’s Asia hours.
Cable kicks off 2022 in muted fashion – Source: capital.com
Commencing trade on Tuesday, the US Dollar Index (DXY) remains on the weaker side at 103.36; a fair way below the 20-day moving average.
Yet the euro lost ground against the greenback too, with the EUR/USD pair dipping 0.3% on Monday and continuing to fall another 0.25% this morning, where it currently changes hands at 106.53.
Eurozone manufacturing data released yesterday indicated somewhat of an easing of the industry’s downturn, although output for the entire fourth quarter is likely to have been on the negative side.
Things were worse for manufacturing output in the UK, with today’s reading showing the weakest output since May 2020 for the month of December, spurred by lukewarm new business volumes and exports.
EUR/GBP fell a quarter of a percent to 88.29p in Tuesday’s Asia window, but the pair is still substantially above the 20-day moving average owing to a bullish December.
Things are quiet on the economic calendar today, but tomorrow will give us mortgage data on both sides of the Atlantic. Mortgage approvals in the UK are expected to gain slightly, with net lending expected to come in at £3.7bn.
How to manage FX Risk/Exposure?
Understanding your FX risk and exposure is paramount to your bottom line. At Currency Solutions our decicated 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.
