The Cable Market (GBP/USD) Held Back Bearish Enthusiasm, The ECB President Christine Lagarde Gave Support To The Euro
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The dollar was little changed on Friday after jumping in the previous session as traders analyzed a string of central bank rate hikes and grappled with the prospect that borrowing costs could still rise.
This week has been hot in central bank events. The Fed raised its key interest rate by 50 basis points on Tuesday. Jerome Powell's speech at the press conference sparked volatility in the market.Further tightening is excellent news for the US dollar. Yesterday, the ECB and the BoE also followed the Fed and raised rates by 50 bp.
GBP/USD
Thursday's Bank of England rate hike of 0.5 percentage point pushed base rates to highs not seen since 2008 (3.5%). But even that wasn't enough to prevent GBP/USD from its biggest daily drop in six weeks
The markets interpreted the move as a "dovish" increase in interest rates, even though six of the nine members of the Monetary Policy Committee in London voted for it, and another member wanted stricter action.
This division does not suggest that the Bank is willing to refrain from further rate hikes.
Thursday's close of the day showed that GBP/USD fell convincingly below the uptrend line that had previously held back bearish enthusiasm for five weeks. This puts clear downward pressure on the pair.
The pound fell on Friday against the euro and the U.S. dolar. Sterling fell 0.2% to $1.2160 against the dolar, versus the euro , the pound exchanged hands at 87.39 pence, 0.2% lower on the day.
EUR/USD
EUR/USD touched a post-ECB high of 1.0736 yesterday before consolidating gains around the 1.0650 area. The technical set-up for the pair remains positive.
Yesterday the European Central Bank raised interest rates by 50 bp as expected. Thus, the rate level reached 2.50%. This level was last seen in 2008. The ECB expects it to increase further.
The European Central Bank (ECB) will raise interest rates "significantly" in the coming months to fight entrenched inflation, The ECB President Christine Lagarde said yesterday, sending a hawkish signal to the market.
This signal turned out to be crucial for the strength of the euro. The ECB's hawkish stance, if fully realized, suggests that the single currency has room to grow in the coming weeks.
USD/JPY
Against the Japanese yen, the dollar fell 0.54% to 137.01 on Friday. The Japanese yen held above 137 per dollar, facing renewed pressure after the US Federal Reserve offered a more hawkish outlook on its policy.
The yen clearly depreciated after the Fed meeting. However, it may fall as the Bank of Japan meeting approaches early next week (19-20/12)
AUD/USD
The Australian dollar fell sharply to around $0.67, facing renewed pressure as major central banks presented a more hawkish monetary policy outlook than markets anticipated, adding to fears of a potential recession next year. In the European session, it will fall even more and is below $0.67.
Moreover, the latest data showed that consumer inflation expectations in Australia hit a seven-month low in December, while the country's unemployment rate remained at 3.4% in November.
Investors also reacted to data showing that Australian private sector activity contracted for the third straight month in December.
Source: investing.com
The RBA has now raised the cash rate for eight consecutive months and said it expects further tightening to bring down inflation.
Source: finance.yahoo.com, investing.com, dailyfx.com
