- Sterling rose against the euro on Monday, catching a break after a sharp slide last week
- The Canadian dollar rallied yesterday by the most in two months against its U.S counterpart
- The Australian and New Zealand dollars were trying to sustain a rally today in the Asian session
The dollar and the euro both eased on Monday after European Central Bank President Christine Lagarde calmed market expectations of a quick hike in interest rates that pushed regional bond yields in Europe up to multi-year highs.
There is no need for big monetary policy tightening in the eurozone as inflation is set to decline and could stabilize around the ECB's target of 2%, Lagarde told a European Parliament hearing. Last week the ECB opened the door to a rate hike later in 2022 as inflation risks rose, while data showing an unexpected jump in U.S jobs created in January also raised speculation of a faster timetable for the Federal Reserve to hike rates.
Economic Calendar
The new rate expectations for both the Fed and ECB pit the dollar and euro against each other as to which will gain an upper hand. U.S consumer price data to be released on Thursday is poised to be a key data point determinant. The euro-dollar will be in a kind of tug of war between these two forces, but ultimately with CPI in the U.S., we're probably due for a bit more of a dollar recovery.
A Reuters poll of economists showed they expect year-over-year CPI to have climbed to 7.3% in January. The major currencies traded in a tight range near break-even. The dollar index fell 0.045%, with the euro down 0.03% to $1.1443. The ECB last week got the ball moving in a positive direction for the euro.
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Now the focus has shifted to U.S. inflation, which the market will use to figure out whether the Fed goes by 25 basis points or 50 basis points next month. Markets have now priced in a one-in-three chance the Fed might hike by a full 50 basis points in March, and reasonable chance rates will reach 1.5% by year-end.
The European common currency hit its highest since mid-January on Friday, driven by the hawkish turn from the ECB. Not everyone is convinced of a hawkish ECB tilt. We don't believe the ECB is bracing for the sudden acceleration of tightening. We still see the Fed as being on track to move well ahead of the ECB, providing support for the dollar. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 2.4 basis points at 1.298%. The yield on two-year German bonds fell by 3.5 bps to -0.29%, after hitting its highest since September 2015 at -0.21%.
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Euro
The single currency leaped 2.7% last week after a hawkish shift in tone at the European Central Bank. Stunningly strong U.S labor data last week has put extra focus on inflation - forecast at a four-decade high 7.3% - in the lead up to March's Federal Reserve meeting. Futures markets are pricing an almost 1-in-3 chance of a 50 basis point rate rise. Overall, the EUR/USD traded with a low of 1.1413 and a high of 1.1461 before closing the day around 1.1441 in the New York session.
Yen
The Japanese Yen traded slightly lower against the U.S Dollar as traders awaited U.S inflation data, wary it could unleash bets on faster interest rate hikes. The surprise beat by the non-farm payroll numbers (which we were warned by Fed officials and the White House would be very weak due to Omicron) leaves the Fed in unexpected territory. Overall, the USD/JPY traded with a low of 114.89 and a high of 115.36 before closing the day around 115.09 in the U.S session.
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British Pound
The British Pound rose to catch a break after a sharp slide last week triggered by the ECB message it no longer ruled out a 2022 interest rates hike which overshadowed the Bank of England’s rate rise. BoE Governor Andrew Bailey may sound hawkish but only because he faces a more uncomfortable trade-off between inflation and growth than others Overall, the GBP/USD traded with a low of 1.3488 and a high of 1.3549 before closing the day at 1.3534 in the New York session.
Canadian Dollar
The Canadian Dollar rallied by the most in two months against its U.S counterpart, as investors took advantage of Friday's selloff following weak domestic jobs data to buy the currency at cheaper levels. On Friday, the loonie touched its weakest intraday level since Jan. 28 as data showed the Canadian economy losing more jobs than expected in January. Overall, USD/CAD traded with a low of 1.2655 and a high of 1.2754 before closing the day at 1.2664 in the New York session.
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Australian Dollar
The Australian Dollar trying to sustain a rally as an improved tone in global equity markets and strength in commodity prices offered a break from recent selling. The Reserve Bank of Australia (RBA) continues to argue that inflation is not as much of a threat in Australia as in some other developed nations and it thus has scope to be patient on interest rates. Overall, AUD/USD traded with a low of 0.7169 and a high of 0.7228 before closing the day at 0.7171 in the New York session.
Euro-Yen
EUR/JPY is trading below 14, 50 and 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also issuing a bearish stance. The Relative Strength Index is above 41 and lies below the neutral zone. In general, the pair has lost 0.15%.
Sterling-Yen
Currently, GBP/JPY is trading below 14 and above 50, 100 days moving average. Fast stochastic is issuing a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 45 reading and lies below the neutral zone. On the whole, the pair has lost 0.01%.
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Aussie-Yen
Currently, the cross is trading above 14, 50 and below 100 days moving average. Fast stochastic is giving a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 43 reading and lies below the neutral region. In general, the pair has gained 0.63%.
Euro-Sterling
This cross is currently trading below 14, 50 and below 100 days moving average. Fast stochastic is indicating a bullish tone and MACD is also issuing a bullish signal. The Relative Strength Index is above 44 and lies above the neutral region. Overall, the pair has lost 0.17%.
Sterling-Swiss
This cross is trading above 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish stance and MACD is also indicating a bearish tone. The Relative Strength Index is above 46 and lies above the neutral region. In general, the pair has lost 0.14%.
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