The U.S. dollar index, which measures the greenback's performance against a basket of six major currencies, closed 0.58% lower in Friday’s session followed by an attempt to recover its momentum modestly in Monday's European morning session. The dollar's weakening comes as a result of the December employment data falling short of forecasts. The U.S. Bureau of Labor Statistics reported on Friday that Nonfarm Payrolls (NFP) increased by just 199,000 in December, against the market consensus of 400,000. Meanwhile, the yield on the benchmark 10-year Treasury note continued to rise to 1.79% in the second week of January, the highest level since January 2020, as investors bet the Fed will have to tighten monetary policy to combat inflation. This, in turn, keeps the dollar robust at the start of the new week. Elsewhere, economists expect the chance of a 25 basis point rate hike in March to be 73.4% on early Monday, up from 57.1% last week at the same time. Moving forward, traders are awaiting the release of December U.S. inflation and retail sales reading statistics later this week in order to gauge the future of monetary policy.
- Wednesday 01/12/2022 - Consumer Price Index (Dec)
- Thursday 01/13/2022 - Producer Price Index ex Food & Energy (Dec)
- Friday 01/14/2022 - Retail Sales (Dec) ¦ Michigan Consumer Sentiment Index (Jan)
The Euro closed 0.56% higher against the U.S. dollar on Friday followed by losing its pace and heading downwards during Monday's morning session. Euro rose near the higher end of its five-week-old trading range on Friday with the release of the US December employment data but reversed its course on early Monday. Meanwhile, the Euro Area's annual inflation rate increased for the sixth consecutive month to a record high of 5% in December 2021, up from 4.9% in November. Additionally, the Euro Area's consumer confidence index was confirmed at -8.3 in December 2021, the lowest level since March, indicating a decline in consumers' expectations for the overall economic condition and their willingness to make big purchases. Elsewhere, economists believe that the 10-year German government bond yield is expected to enter the positive territory for the first time since May 2019, indicating that the European currency may find demand in case that happens. Coming up on the European economic calendar is November unemployment statistics, predicted to be 7.2%, which will continue to influence Euro prices.
- Thursday 01/13/2022 - Economic Bulletin
The Sterling closed 0.41% higher on Friday, although it oscillated near eight-week high levels when heading into Monday’s morning session. The British Pound seems to have entered a bullish consolidation period, fluctuating around two-month highs. The currency continues to be supported by hopes that the Omicron variant would not disrupt the UK economy and increased bets on more Bank of England (BoE) rate hikes. On the other hand, a sharp increase in demand for the U.S. dollar capped any additional gains for Sterling, at least temporarily. Additionally, traders refrained from putting new bullish trades on the currency due to the absence of important market-moving economic data from either the UK or the U.S. Elsewhere, UK stock markets began the week cautiously, with the FTSE 100 sliding back on Monday, as investors await the U.S. inflation report later this week that may give additional clues on the Federal Reserve's monetary policy path. Looking forward, U.S bond yields will continue to influence U.S. dollar prices and provide fresh impetus.
- Friday 01/14/2022 - Gross Domestic Product (Nov) ¦ Gross Domestic Product (MoM)(Nov) ¦ Manufacturing Production (Nov)
The Japanese Yen closed 0.23% higher on Friday and continued to remain steady, avoiding losses during Monday's session. The Japanese Yen stabilized against the U.S. dollar after regaining some ground as the Japanese finance minister Shunichi Suzuki emphasized the importance of currency stability and said that he was constantly monitoring market movements and their effect on the economy. Analysts have warned of the negative consequences of a weak Yen, which increases import costs and the cost of living for consumers at a time when the economy is recovering from the pandemic. The currency, on the other hand, stayed near to five-year lows as Japan's and other nations' monetary policies continued to differ. While other central banks have shown a willingness to normalize monetary policy, the Bank of Japan (BoJ) is largely anticipated to keep its ultra-loose monetary policy, since inflation in Japan has stayed considerably below the central bank's objective of 2%. Moving on, the U.S. dollar price dynamics and wider market sentiments will provide fresh impetus to the Yen.
- Tuesday 01/11/2022 - Current Account (Nov)
The Loonie closed 0.68% higher on Friday followed by it continuing its uptrend modestly as it entered Monday’s European trading session. The Loonie hovered at four-week highs in the early hours of Monday, posting gains for the second straight day, the highest in a week, on the heels of labor market statistics from the U.S. and Canada. The headline U.S. Nonfarm Payrolls (NFP) report for December disappointed investors, coming in at 199K against 400K projections. On the other hand, Canadian Employment Change increased to 54.7K, above the prediction of 27.5K. Meanwhile, amid decreasing worries of a supply constraint from Kazakhstan and Libya, the West Texas Intermediate (WTI) crude oil prices remain restrained at approximately $78.60. Coming up, a lack of significant data/events may limit upside moves, but hawkish bets on Fed rate increases ahead of the publication of US CPI data will continue to influence Loonie pricing.
The Mexican Peso finished 0.51% higher against the U.S. dollar on Friday and it continues to oscillate around the two-month high levels during the European trading session on Monday. The Mexican Peso traded higher against the U.S. dollar in the first week of January, its highest level since early November, as Central Bank of Mexico (Banxico) minutes revealed policymakers' continued worry over inflation, spurring expectations of a continuation of the tightening cycle. Meanwhile, Mexico's annual inflation rate remained stable at 7.36% in December 2021, down from a nearly two-decade high of 7.37% in November. Elsewhere, economists predict that Banxico's new governor, Victoria Rodriguez Ceja, would pursue a dovish monetary policy, putting economic growth ahead of inflation management. As a consequence, along with Fed actions, this uncertainty likely weighs on the Mexican peso in the short to medium term..
The Chinese Yuan closed marginally higher on Friday before continuing its upside momentum on Monday’s session. The offshore Yuan edged higher against the U.S. dollar, as business demand ahead of the Lunar New Year surpassed expectations of a more aggressive U.S. Federal Reserve monetary tightening. Additionally, the People's Bank of China (PBoC) fixed the midpoint rate at a near three-week high against the dollar, up 89 basis points from the previous fix. This move followed the Yuan's depreciation last week as strong Fed hawkish signals pushed U.S. Treasury rates higher, compressing the yield difference between Chinese and U.S. 10-year government bonds and increasing the risk of capital outflows. Meanwhile, the Chinese central bank is largely anticipated to continue loosening monetary policy to avert an economic slowdown. Elsewhere, Investors also expressed worry about China's zero-tolerance policy against Covid after the first case of the omicron variant was reported in the city of Tianjin.
- Wednesday 01/12/2022 - Consumer Price Index (Dec)
- Thursday 01/13/2022 - Trade Balance USD (Dec)
The Brazilian Real closed 0.78% higher against the greenback on Friday. The Brazilian Real strengthened, recovering from a near two-and-a-half-week low, amid a weaker dollar following mixed economic data showing the U.S. unemployment rate fell more than expected in December and wage growth accelerated, while non-farm payrolls fell short of expectations. Nevertheless, the currency remains restrained in the face of periodic downward adjustments to economic growth projections for 2022. In 2021, economists expected GDP growth of 2.5% for this year, while predictions have already dwindled to 0.36% due to recent shocks. Additionally, as the 2022 general elections are on their way, rising political uncertainty has pushed investors away from the currency. Polls indicate that the left-wing PT (Workers' Party) is increasingly likely to win, while budgetary worries have grown in response to Bolsonaro's populist measures.
- Friday 01/14/2022 - Retail Sales (Nov)