US Dollar Tumbles on Dovish Fed Powell Comments, Euro Undermined as Inflation Cools More than Expected

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 as Eurozone Inflation Cools

Trade in the Euro was mixed this week, with initial gains being reversed after Eurozone inflation printed below expectations in November and weakened European Central Bank (ECB) rate hike bets. The single currency’s negative correlation with a weakening US Dollar helped limit the losses, although USD volatility on Friday caused some turbulence.

Germany’s latest industrial releases may act as the main catalyst of movement for the Euro next week, with a contraction in factory orders or industrial production at the start of the fourth quarter likely to weigh on the Euro.

Top EUR data releases:

Dec 5 EUR Services PMI (Nov) 

Dec 6 EUR German Factory Orders (Oct)

Dec 7 EUR German Industrial Production (Oct)

 

USD – US Dollar Plunges on Dovish Fed Powell Comments

After fluctuating in the first half of the week amid mixed market sentiment, the US Dollar was sent plunging in response to comments from Federal Reserve Chair Jerome Powell, who suggested it makes sense for the bank to begin slowing the pace of it rate hikes. On Friday, the US Dollar was able to bounce off multi-month lows after the non-farm payrolls report smashed forecasts and wage growth unexpectedly rose.

The focus for USD investors next week is likely to be the ISM non-manufacturing PMI. Could a slowdown in US service sector activity pile fresh pressure on the US Dollar?

Top USD data releases:

Dec 5 USD ISM Non-Manufacturing PMI (Nov)

Dec 9 USD PPI (Nov)

Dec 9 USD Consumer Sentiment (Dec)

 

GBP – Pound Fluctuates on Dour UK Economic Data

The Pound stumbled out of the gates this week as underwhelming retail and mortgage data both highlighted the headwinds facing the UK economy. After struggling in the middle of the week on the back of some dovish Bank of England (BoE) commentary, Sterling was able to claw back some of its losses thanks to an improving market mood and positive PMI data.

Data remains thin on the ground next week. Barring a major deviation from the preliminary reading in the UK’s latest services PMI, movement in the Pound could be primarily driven by market sentiment.

Top GBP data releases:

Dec 5 GBP Services PMI (Nov)

 

AUD – Australian Dollar Strengthens in Bullish Trade

The Australian Dollar opened this week on the back foot as investors were spooked by the outbreak of Covid protests throughout China. The ‘Aussie’ was quick to bounce back as risk appetite improved, with rumours Beijing might begin easing lockdown measures and fading Fed rate hike bets both cheering markets.

Another 25bps rate hike from the Reserve Bank of Australia (RBA) could drag on AUD exchange rates next week, although any losses could be swiftly reversed if Australia’s latest GDP figures impress. 

Top AUD data releases:

Dec 6 AUD RBA Interest Rate Decision 

Dec 7 AUD GDP (Q3)

Dec 8 AUD Balance of Trade (Oct)

 

ZAR – Rand Tumbles on Ramaphosa Impeachment Fears

The South African Rand trended higher through the first half of this week, with the emerging market currency benefiting from improving risk appetite. However, ZAR sentiment then soured swiftly following the news President Cyril Ramaphosa could face impeachment after potentially breaking anti-corruption laws.

South Africa’s latest GDP figures will be in the spotlight next week. Another contraction in growth in the third quarter will see the country slip into a recession and is likely to weigh heavily on ZAR exchange rates.

Top ZAR data releases:

Dec 6 ZAR GDP (Q3)

 

CAD – Canadian Dollar Knocked by GDP Release

The Canadian Dollar faced some notable selling pressure this week after Canada’s latest GDP figures reported a significant slowing of domestic growth. While a decline in Canadian government bond yields added to the pressure, upbeat Canadian and American job data on Friday saw CAD recoup some losses.

The Bank of Canada (BoC) will deliver its latest interest rate decision next week. Will another modest rate hike push CAD even lower?

Top CAD data releases:

Dec 6 CAD Balance of Trade (Oct)

Dec 6 CAD Ivey PMI (Nov)

Dec 7 CAD BoC Interest Rate Decision