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It was the most important week in 2022. Fed President Jerome Powell and ECB President Christine Lagarde reminded the markets that they are still committed to fighting inflation, rather than focusing on promoting economic growth.
The pair ended the week at 1.0574, thus trading below $1.06. The close is similar to earlier this week, with the pair also trading above $1.05. Also on Monday it recorded a low of 1.0511. This week the most important event in the euro zone was the ECB's decision on interest rates. The central bank of the European Union made the same decision as the Fed and the Bank of England, i.e. it raised interest rates by 50 bp. But it was the president of the ECB who gave the euro strength. And on Thursday, after a hawkish statement, it reached its highest level of the week, hadel was close to 1.07 (1.0691 to be exact).
A number of significant events took place in the European Union this week. The ECB meeting was adjourned; the remaining data must be resolved. Despite traders' expectations for a fall of 1.5-2.5%, industrial production fell by 2% in October. Instead of an increase of 10%, exactly as indicated by the first estimates of the index, inflation rose in November by 10.1%. The economic activity index in the manufacturing sector increased to 47.8, and in the services sector to 49.1. However, both indicators are still below the 50.0 threshold, so they cannot be considered positive at the same time. This week's macroeconomic reports from the EU seem to be disappointing. This problem has been around for a long time. In general, the euro continues to grow unreasonably, although it has already reached its peak.
The GBP/USD pair started the week of December 12-16 at 1.2266. Then after the US data inflation traded between 1.2243-1.2300. The lowest level, similarly to the euro, was recorded by the cable pair at the beginning of the week, the lowest traded at 1.2217, and the highest at 1.2248 this week. The pair ended the week below $1.22 as fears of a recession increase.
Overall, the British pound looks set to end the week under strong pressure against the US dollar, with weak economic data on Friday fueling fears of a recession in the national economy.
Thursday's Bank of England rate hike of 0.5 percentage point pushed base rates to highs not seen since 2008 (3.5%).Markets interpreted the move as a dovish interest rate hike.
The recent decision of the Bank of England revealed a three-way split of votes: six out of nine MPC members voted for a 50 bp rate hike, two members voted for no change, and the last member voted for another 75 bp rate hike. Recession fears are intensifying with prospects for the UK to be in recession for "an extended period" while inflation is expected to remain very high in the short term before falling sharply from mid-2023. Overall, the short-term outlook for the economy in the UK remain negative, which is starting to show in sterling now.
The Aussie Pair started the week at 0.6780. The movements of the pair were similar to EUR/USD and GBP/USD. The pair recorded the lowest trade at 0.6678 and the highest at 0.6892. Ending the week at 0.6686.
The Australian dollar was weakened last week after the US dollar posted an incredible rally amid growing fears of a recession. The Federal Reserve raised the interest rate by 50 basis points to a target of 4.25% - 4.50% on Wednesday.
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Australia's unemployment rate remains at a multi-generational low of 3.4% after adding 64,000 jobs. jobs in November. This is in addition to the growing trade surplus from the previous week.
The rest of the fundamental picture is a little mixed towards the end of the year, when building permits and retail sales data are disappointing. These figures appear to have been influenced by RBA interest rate hikes.
USD/JPY started the week trading at 136.6790. The week's high is 138.15 and the low is 134.71. As you can see, the trade was very diverse and the price fluctuated rapidly. The pair ended the week at 136.69
Source: finance.yahoo.com, dailyfx.com, investing.com
