Pound Firms as England to ‘Ride Out’ Omicron, US Dollar Buoyed by Fed Rate Hike Bets

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 Dented by USD Strength

The Euro got off to a poor start this week, with the single currency’s negative correlation with the US Dollar leaving it vulnerable as the latter strengthened. However, some positive German data and a surprise acceleration of Eurozone inflation helped the Euro to minimise these losses through the latter half of the session.

Turning to next week’s session, the focus for EUR investors is likely to be on the publication of Germany’s latest GDP figures. Will the surge in domestic Covid cases have dragged on growth in the last quarter and have resulted in a weaker-than-expected GDP reading for 2021?

Top EUR data releases:

Jan 10 EUR Unemployment Rate (Nov)

Jan 12 EUR Industrial Production (Nov)

Jan 14 EUR German Full Year GDP (2021)

 

USD – US Dollar Buoyed by Fed Rate Hike Speculation

Expectations that the Federal Reserve may hike interest rates at an accelerated pace in 2022 helped to underpin demand for the US Dollar this week. This uptrend in the US Dollar persisted through the latter half of the week in spite of some disappointing US data, most notably in the form of December’s non-farm payroll release, which printed well below expectations.

Centre stage next week will be the publication of the latest US consumer price index. If December’s release reports US inflation continued to climb then this this would support Fed rate hike speculation and likely send the US Dollar higher.

Top USD data releases:

Jan 12 USD Inflation Rate (Dec)

Jan 14 USD Retail Sales (Dec)

Jan 14 USD Consumer Sentiment (Jan)

 

GBP – Pound Firms as ‘Good Chance’ England Avoids Additional Restrictions

The Pound rallied through the first half of this week after Boris Johnson’s suggestion that England will be able to ‘ride out’ Omicron without further restrictions bolstered hopes the UK will be able to avoid further economic disruption from the Covid variant. However Sterling was unable to sustain its best levels for long, as surging infections and a weak services PMI took their toll on the currency.

In addition to domestic Covid developments, the Pound is also likely to be influenced by the publication of the UK’s latest GDP figures, with an acceleration of economic growth in November potentially buoying Sterling sentiment.

Top GBP data releases:

Jan 14 GBP GDP (Nov)

Jan 14 GBP Trade Balance (Nov)

Jan 14 GBP Industrial Production (Nov)

 

AUD – Australian Dollar Dented by Fading Risk Appetite

The Australian Dollar has spent much of the past week on the defensive, with a gloomy market mood sapping the appeal of the risk-sensitive ‘currency. While the ‘Aussie’ made an attempt to rally in mid-week trade, this was cut short by a surge in the US Dollar following the publication of some hawkish FOMC minutes.

Looking ahead, the release of Australia’s latest trade figures will be the primary focus for AUD investors next week, with the Australian Dollar potentially extending its downside momentum if the nation’s trade surplus continued to narrow in November.

Top AUD data releases:

Jan 11 AUD Trade Balance (Nov)

Jan 11 AUD Retail Sales (Nov)

 

ZAR – Rand Bolstered by Omicron Optimism

Despite being rocked by fluctuating market risk appetite, the South African Rand was able to trend broadly higher this week after the country began to lift some restrictions amid suggestions from health experts that South Africa may have passed the peak of its Omicron outbreak.

In the absence of any notable ZAR data releases next week, the direction of the Rand may be driven by market sentiment, potentially leading to losses if risk appetite remains weak.

Top ZAR data releases:

Jan 11 ZAR Manufacturing Production (Nov)

 

CAD – Canadian Dollar Slumps as New Restrictions Imposed

The Canadian Dollar trended broadly lower this week after Canada reinstated some Covid restrictions in an effort to combat surging infections. This offset a sharp rise in oil prices at the start of 2022 which may have otherwise helped to buoy the ‘Loonie’.

Turning to next week, with CAD data releases thin on the ground the Canadian Dollar is likely to remain sensitive to domestic Covid developments.