EUR/USD, GBP/USD And AUD/USD Fell Sharply After The US Dollar Recovered
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The US dollar appreciated, mainly due to the minutes from the December meeting of the Federal Reserve. The U.S. central bank raised interest rates by 50 basis points last month after four consecutive increases of 75 basis points in a year, but said it may have to keep interest rates higher for longer to bring inflation under control. Minutes from the December Fed meeting are due to be released on Wednesday, with investors looking for clues as to what rate path is likely to be taken in 2023.
The market seems to be struggling to interpret the change in China's Covid-19 strategy. On the one hand, it is predicted that it is likely to unleash the world's second largest economy and its associated supply chains.
The Chinese data remains soft and the Caixin manufacturing PMI released today came in with a narrow miss. In December it was 49.0 instead of 49.1 forecast and 49.4 earlier.
Moreover, there was a desire from the Chinese side for better relations with the US after their foreign minister said they would look for more open channels of communication.
It is worth noting, however, that the exchanges point to a risky market environment, which usually makes it difficult for the US dollar to find demand.
USD/JPY
The Japanese yen continued to strengthen today with USD/JPY dipping below 130 for the first time since June last year.
It has now returned to trading above 130 and is close to 131.
The yen, which hit a seven-month high during the Asian trading hours, was recently trading low at 130.45 to the dollar.
The pair's decline was mainly driven by a new Japanese yen buying spurt as US equities futures fell at the open and bolstered safe-haven inflows into the yen.
Speculation that the BoJ was about to start moving away from its very lax policy flared up in December when the central bank extended the yield cap on 10-year Japanese government bonds (JGB).
This was further reinforced by the Nikkei report on Saturday.
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GBP/USD
GBP/USD drops below the key 1.2000 level for the first time in 4 weeks as the dollar index recovers. Today's morning drop in GBPUSD is due to the recovering dollar index. The risk-positive market environment does not appear to be helping sterling find support so far.
As noted above, the decline is attributable to the stronger dollar and not to UK-specific factors, which may also have exaggerated the impact. The UK economy is weighed down by recession fears, high inflation and the cost of living crisis. The Bank of England has raised interest rates nine times since December 2021 to try to bring down inflation, which remains close to a 41-year high.
EUR/USD
EUR/USD lost traction and fell towards 1.0550 early Tuesday after climbing above 1.0700 on Monday. It's hard to stop the driving force of the pair's recent actions as the market recovers with the US dollar strengthening again. Nevertheless, technical forecasts point to a bearish slope after the sharp decline seen during the European session.
Euro still awaits German CPI data release, which may help EUR/USD move towards 1.06.
Source: investing.com
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AUD/USD
The Australian pair fell from above 0.68 to 0.6695
Weaker than expected official Chinese PMI data released over the weekend may have contributed to the decline.
The Australian remains supported by expectations that the Reserve Bank of Australia will raise interest rates later this year as part of its ongoing effort to bring down inflation. Markets are currently divided on whether the RBA will deliver another rate hike in February. Australia's trade balance remains at a record high and the AUD/USD exchange rate weakens due to interest rate differentials, and the domestic economy continues to benefit from this.
Source: investing.com
Source: dailyfx.com, investing.com, finance.yahoo.com
