US Dollar surprisingly Strong Against GBP and Euro
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Daily Forex Market Report 07-Dec-2022: US Dollar surprisingly Strong Against GBP and Euro
Traders are anticipating the Bank of Canada’s interest rate decision later today.
A 50 bps hike is generally expected, which would mark the seventh consecutive increase by the bank, though 25 bps is also on the cards.
USD/CAD has rallied hard over the past two days in anticipation of the announcement, bringing the pair to a three-week high of 1.356, although the pair has been somewhat indecisive in this morning’s Asia trading window.
With the US Dollar Index (DXY) performing surprisingly well, Cable has continued to retreat from those five-month highs achieved towards the end of last week. The pair is currently changing hands at 1.213, having closed 0.5% lower on Tuesday.
It is debatable how long the US dollar can sustain its surprise momentum, considering broader market acknowledgement that the dollar top has been reached.
GBP/USD pares back, but dollar rally may be short lived – Source: tradingview.com
Somewhat indicatively, average UK house prices fell -2.3% month on month according to Halifax data released this morning, marking the biggest monthly drop since October 2008.
The greenback is showing strength against the euro, with the EUR/USD pair dipping another 15 pips to 1.045 this morning.
Eurozone GDP figures are due later today. The European Commission revised its forecasts up recently – from 2.7% to 3.2% – though a considerable slowdown in 2023 is all but a given.
EUR/GBP is currently trading at 86.21p, having inched back around 10 pips from the morning high.
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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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