IFX Market Report: Tuesday 11th January 2022

The US Dollar edged higher against the Euro and Sterling on Monday as “recent employment data prompted some Wall Street banks to raise their estimates for how quickly the Federal Reserve will raise interest rates this year”. The Dollar Index (DXY) was 0.2% up on the day yesterday and remains close to the 16-month high it reached back in late November. According to Reuters, Goldman Sachs “expects the Fed to raise interest rates four times this year and begin the process of reducing the size of its balance sheet as soon as July”. The investment bank predicts the Fed will raise rates in March, June, September, and December. According to CME’s FedWatch tool, traders are now pricing in an 80% chance of a rate hike in March.

Sterling had a mixed performance on Monday, falling against the Dollar but reaching new highs against the Euro. The main drive for Sterling’s upside was interest “rate rise expectations and easing fears about the economic impact of the Omicron variant”. While the Pound still remains sensitive, it has been the best performing G10 of the year thus far – implying investors still have confidence in the currency despite obvious pressures.

GBPUSD started the week at 1.3591 and steadily declined on the day. Cable went on to close at 1.3565.

GBPEUR started the Monday session at 1.1990, and after hitting 23-month highs above 1.20, closed the day 1.1976.

EURUSD only made a minor loss yesterday despite a weaker Euro. The pair opened at 1.1335 and closed at 1.1326.

On the data front, with no economic releases the market will focus its attentions on central bank speakers. At 10:20, European Central Bank President Christine Lagarde will be speaking. Then at 14:30, Esther George of the Fed will be giving a speech, followed 30 minutes later by Fed Chair Jerome Powell’s Testimony.

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