Pound Catapulted Higher by BoE’s Rate Hike Surprises, US Dollar Stumbles Despite Hawkish Fed

Find out how the major currencies have been performing and what movement we could see in the days ahead with our weekly exchange rate update.

 

EUR – Euro Supported by ECB Policy Outlook

The Euro initially softened this week, as the single currency’s negative correlation with the US Dollar saw it struggle as the latter strengthened. The European Central Bank’s (ECB) latest rate decision then helped to reverse this trend in the latter half of the week, with a lack of dovish signals from the bank sending the Euro higher.

A sparse EUR data calendar will likely see the direction of the Euro determined by Covid developments next week. Expect to see the single currency weaken if surging cases force some countries to introduce stricter restrictions.

Top EUR data releases:

Dec 21 EUR Consumer Confidence (Dec)

 

USD – US Dollar Slides Despite Hawkish Fed Policy Statement

The US Dollar trended higher through the first half of this week, with skittish investors favouring the safe-haven currency amidst a prevailing risk-off mood. But the ‘Greenback’ pared a good portion of these gains in the latter half of the week after some USD investors unwound their positions following the Federal Reserve’s latest policy statement, in spite of the bank accelerating its tapering process and signalling three rate hikes will be targeted in 2022.

The publication of the latest US durable goods orders may help to bolster the US Dollar next week, if November’s release shows that goods orders rebounded as forecast.

Top USD data releases:

Dec 22 USD GDP (Q3)

Dec 22 USD Durable Goods Orders (Nov)

Dec 22 USD PCE Price index (Nov)

 

GBP – Pound Spikes as BoE Surprises with Rate Hike

The Pound jumped this week, after the Bank of England (BoE) surprised markets by voting to raise interest rates from a record low this month. This helped to reverse some losses from earlier in the week, which stemmed from gloomy UK Covid headlines and fears England may need to impose stricter restrictions to contain its Omicron outbreak.

Turning to next week’s session, the Pound could face an uphill battle if UK Covid cases continued to rise at an alarming rate as this will stoke fears the government will need to consider a ‘Plan C’ in the new year.

Top GBP data releases:

Dec 20 GBP CBI Industrial Trends Orders (Dec)

Dec 21 GBP CBI Distributive Trades (Dec)

Dec 22 GBP GDP (Q3)

 

 

AUD – Australian Dollar Rebounds on Impressive Employment Figures

The Australian Dollar initially faltered this week as a souring market mood weakened the appeal of the risk-sensitive currency. However, the reopening of Australia’s borders, coupled with data showing a much larger-than-expected drop in domestic unemployment last month helped AUD exchanges rates to strengthen again in the latter half of the week.

The publication of the minutes from the Reserve Bank of Australia’s (RBA) latest policy meeting will be the main priority for AUD investors next week, and could buoy the ‘Aussie’ if they hint at accelerating the RBA’s tapering process.

Top AUD data releases:

Dec 21 AUD RBA Minutes

 

ZAR – Rand Rallies amid Market Correction

The South African Rand was placed on the defensive through the first half of this week, pressured by concerns over surging Covid cases in South Africa. However, the pullback in the US Dollar in the latter half of the week then enabled a rebound in ZAR exchange rates as risk appetite improved.

In the absence of any notable ZAR data releases next week, it’s likely the direction of the Rand will be driven primarily by market sentiment, potentially leading to some pressure if Omicron concerns sour the mood.

 

CAD – Canadian Dollar Undermined by Sliding Oil Prices

A dip in oil prices pushed the commodity-linked Canadian Dollar broadly lower this week, particularly after the International Energy Agency (IEA) slashed its oil demand forecast. The ‘Loonie’ was also undermined by Canada’s latest CPI release as inflation held at 4.7% in November.

Looking ahead to next week, the Canadian Dollar could struggle if Canada’s latest GDP figures report another slowing of growth at the start of the fourth quarter.

Top CAD data releases:

Dec 21 CAD Retail Sales (Oct)

Dec 23 CAD GDP (Oct)