IFX Market Report: Thursday 6th January 2022

After struggling against its major rivals during the first half of the European trading day, the US Dollar “made a sharp U-turn in the late American session” due to rising US Treasury bond yields. The US Dollar Index (DXY) this morning continues to rise as investors assess last nights FOMC December meeting minutes. Markets are optimistic as the Minutes “suggested that March remains a live event, sparking speculation of three or four interest rate hikes amidst a persistent improvement in the US labour market and elevated inflation”.  According to the CME FedWatch Tool, there is now an almost 70% probability that Fed will hike interest rates at their March meeting.

As for Sterling, rising COVID-19 cases have yet to bring too much harm to the UK currency.  After recording more than 200,000 positive cases for the first time on Tuesday, official numbers show that a further 194,747 infections were detected in the UK on Wednesday.

GBPUSD opened at 1.3546 on Wednesday and was able to better this position by the close, finishing the day at 1.3566. Since the release of the FOMC’s December minutes however, the Dollar has exerted tough pressures on Cable, forcing the pair closer to the 1.3500 handle.

GBPEUR in contrast made a loss yesterday, trading in a tight range for most of the session. The par opened at 1.1985 and closed at 1.1977.

EURUSD improved on its position on Wednesday – opening at 1.1302 and closing at 1.1327.

On the data front, it’s a busy schedule today. At 09:30 the UK will release December’s Composite and Services PMI’s. Then at 13:00, Germany preliminary Inflation Rate YoY and MoM will published. Then, 30 minutes later the US will release its latest weekly Labour report, followed by the ISM Non-Manufacturing PMI at 15:00.

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