Pound Tumbles as New Covid Restrictions Introduced, US Dollar Undermined by Bullish Market Mood
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 Fluctuates amidst Mixed Messages from the ECB
Trade in the Euro has been mixed this past week, initially being pressured by data showing a starling contraction in German factory orders in October and well as a drop in German economic sentiment. EUR exchange rates then rebounded after a European Central Bank (ECB) policy maker suggested it was unlikely the bank would increase its stimulus programme in response to Omicron, before falling again as reports appearing to refute these claims.
As such the spotlight for EUR investors next week will be the ECB’s latest policy meeting, if the bank agrees to temporary expand its Asset Purchase Programme (APP) then the Euro is likely to stumble.
Top EUR data releases:
Dec 16 EUR Manufacturing PMI (Dec)
Dec 16 EUR Services PMI (Dec)
Dec 16 EUR ECB Interest Rate Decision
USD – US Dollar Dented by Risk-On Flows
The US Dollar initially softened this week as a prevailing risk-on mood sapped demand for the safe-haven ‘Greenback’. However, USD exchange rates subsequently rebounded as sentiment soured and hawkish Federal Reserve expectations underpinned the US Dollar, losing only a little ground after US inflation didn’t exceed expectations.
All eyes will be on the Fed next week as it delivers its final interest rate decision of 2021. No policy changes are expected from the US central bank this month, but some hawkish forward guidance could send the US Dollar sharply higher.
Top USD data releases:
Dec 15 USD Retail Sales (Nov)
Dec 15 USD Fed Interest Rate Decision
Dec 16 USD Manufacturing PMI (Dec)
GBP – Pound Tumbles as New Covid Restrictions Introduced
The Pound came under some notable pressure this week, following the UK government’s announcement it would be implementing its Plan B Covid restrictions in order to combat the spread of the Omicron variant. The new restrictions were seen as likely to hurt the UK’s economic recovery as well as greatly reducing the odds of the Bank of England (BoE) hiking interest rates following its December policy meeting.
While the BoE is no longer expected to hike interest rates next week, its forward guidance, in light of the UKs latest employment and inflation figures, could help to prop up Sterling sentiment.
Top GBP data releases:
Dec 14 GBP Unemployment Rate (Oct)
Dec 15 GBP Inflation Rate (Nov)
Dec 16 GBP BoE Interest Rate Decision
AUD – Australian Dollar Soars on RBA Tapering Hints
The Australian Dollar surged this week, underpinned by hints from the Reserve Bank of Australia (RBA) that it could wind down its quantitative easing programme early next year, bolstering hopes for a potential rate hike in 2023. This uptick in the ‘Aussie’ was reinforced by broadly a bullish market mood through the first half of the week, before fading risk appetite tempered demand towards the end of the session.
No doubt, the focus for AUD investors next week will be on Australia’s latest jobs report. If unemployment began to fall again last month, then the ‘Aussie’ could strengthen.
Top AUD data releases:
Dec 15 AUD RBA Lowe Speech
Dec 15 AUD Services PMI (Dec)
Dec 16 AUD Unemployment Rate (Nov)
ZAR – Rand Rallies amid Market Correction
A prevailing risk-on mood helped to propel the South African Rand higher through the first half of this week, before a disappointing retail sales reading, coupled with souring market sentiment unwound most of the emerging currency’s gains.
Turning to next week the focus for ZAR investors will likely be on South Africa’s consumer price index. Will a slowing of inflation put some pressure on the Rand?
Top ZAR data releases:
Dec 15 ZAR Inflation Rate (Nov)
CAD – Canadian Dollar Bolstered by Rallying Oil Prices
A strong rebound in oil prices helped the commodity-linked Canadian Dollar get off to a strong start this week. However, these gains were subsequently tempered in the latter half of the week as a number of CAD investors appeared disappointed by the Bank of Canada’s (BoC) decision to leave interest rates on hold.
The publication of Canada’s CPI figures will no doubt be the primary focus for CAD investors next week. Will another rise in inflation in November bolster hopes for a more hawkish approach to monetary policy from the BoC in the future?
Top CAD data releases:
Dec 15 CAD Inflation Rate (Nov)
Dec 15 CAD BoC Macklem Speech
Dec 16 CAD ADP Employment Change (Nov)