GBP/USD Pair Is Struggling To Extend Previous Highs, EUR/USD Pair Continued Its Gains
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The Bank of Canada's interest rate decision appears to have put sentiment risk back as markets hope other central banks will follow suit. The BoC announced a pause in interest rate hikes to assess the impact of the recent hikes on the Canadian economy. Given that the BoC was the first major central bank to raise interest rates, market participants seem to see yesterday's announcement as a sign that the Federal Reserve and the ECB may follow suit.
The dollar fell to an eight-month low against its peers on Thursday as a dismal US corporate earnings season fueled recession fears ahead of many central bank meetings next week. The Fed's policy-setting committee will begin a two-day meeting next week and markets have priced in a 25 basis point (bp) rate hike, down from the central bank's 50bp and 75bp hikes recorded last year.
USD/JPY
The Japanese yen gained against the US dollar on Wednesday, taking advantage of the US dollar's significant weakness. Despite minor recent changes by the Bank of Japan towards policy normalization, the BoJ remains the most dovish developed central bank. USD/JPY is down for the third day in a row and touches a new weekly low around 129.00 during the Asian session on Thursday.
Fresh speculation that high inflation could lead the Bank of Japan (BoJ) to be more hawkish later this year continues to support the JPY. Bets were lifted by data released last week that showed Japan's nationwide core inflation hit 4% in December - its highest annual print since December 1981.
Although USD/JPY fell in the Asian session, in the European session the pair gained and traded close to 129.90.
AUD/USD
Trade was a bit weak as Australia was closed for the holidays.
The Australian dollar's rally against the US dollar is gaining momentum on the back of rising optimism over China's reopening and rising commodity prices.
AUD/USD has been trading nicely in an uptrend since October. Earlier this month, the pair rose above a key resistance.
The Australian pair is doing quite well and trading above 0.7100 during the European trading session.
EUR/USD
EUR/USD continued its gains from yesterday, holding above 1.09 after opening in Europe. The euro gained strength against the dollar yesterday as the domino effects of the Bank of Canada's interest rate decision swept through the market.
ECB Governing Council member Gabriel Makhlouf said on Wednesday: "We must continue to raise interest rates at our meeting next week - taking a similar step to our December decisions," and added that the same should happen at the next March meeting.
EUR/USD remains stable at around 1.0900 during the European session. Traders refrain from placing new EUR/USD bets ahead of critical US GDP releases.
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GBP/USD
The Bank of England is set to raise interest rates by half a point to 4.0% to tackle double-digit inflation, while markets are split on how much further rates will rise beyond that. Britain's inflation rate moved further away from October's 41-year high. Meanwhile, the risk of the UK slipping into recession continued to weigh on sentiment after the latest PMI survey showed the UK business economic activity fell.
GBP/USD is struggling to extend previous highs at around 1.2400 during European trading hours. The US dollar is licking its wounds with weaker US Treasury yields amid dovish Fed betting.
Source: investing.com, finance.yahoo.com, dailyfx.com
