The Cable Market (GBP/USD) In The Week Leading Up To Christmas Drops Significantly
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The dollar weakened against most currencies in uncertain, weak trading on Friday as data signaled the US economy was cooling down somewhat, bolstering expectations of smaller interest rate hikes by the Federal Reserve and improving investors' appetite for risk.
Excluding the volatile food and energy components, the PCE index gained 0.2% after rising 0.3% in October. The so-called core PCE price index rose 4.7% year-on-year in November, following a 5.0% increase in October. The Fed tracks PCE price indices for its monetary policy.
The Fed is widely expected to raise interest rates by just 25 basis points at its next policy meeting in January, after a series of big hikes.
USD/JPY
The Jena/Dollar pair enjoyed a high level only on Monday, i.e. before the Bank Of Japan meeting. The pair's trade on this day was the highest of the week, with the day's highest trade reaching 137.4430. On Tuesday, the day of the Bank of Japan meeting, the pair dropped drastically and traded below 133. It also hit a low on that day, trading at 130.68. USD/JPY traded in the 132-133 range for most of the week. It closed the week at 132.8720.
Against the yen, the dollar rose 0.4% to 132.82 yen. The dollar, however, was on track for a weekly drop of 2.8% after the Bank of Japan (BOJ) revised a key bond market policy earlier this week.
In a surprise move, the Bank of Japan adjusted its yield curve control strategy this week, broadening the range where long-term Japanese yields are allowed to trade. Governor Kuroda downplayed the action as a mere "fine-tuning" of policy to ensure the smooth functioning of the domestic bond market, insisting that it was not really a tightening.
Markets now expect the BoJ to leave negative rates by April, pricing in a 15bps rate hike that will bring rates back above zero. Then the new governor of the BoJ will take over, so investors are basically betting that the change of leadership will usher in a new era of monetary tightening in Japan.
EUR/USD
EUR/USD traded mixed. The weekly range was very wide 1.0580-1.0660. The highest level was recorded at the upper end of the weekly range, 1.0660, and the lowest level was read on Thursday and it was lower than the 1.0578 range.
In terms of projected fundamental event risk until the end of 2022, last Friday's PCE deflator was arguably the last significant release. The Fed's preferred inflation reading fell from 6.1 to 5.5, while the core reading was in line with expectations, falling from 5.0 to 4.7 percent.
GBP/USD
Contrary to EUR/USD, the cable pair has been falling day by day this week. It peaked at the beginning of the week trading above 1.22, 1.2241 to be exact. The lowest level was below 1.20. GBP/USD's weekly low was at 1,996.
These declines were significantly affected by the publication of UK GDP.
Revised figures show the UK economy contracted more than initially thought in the three months leading up to September.
The economy shrank by 0.3%, down from the previous estimate of 0.2%, as business investment performed worse than initially thought.
Growth figures for the first half of 2022 have also been revised downwards.
The UK is expected to fall into recession in the final three months of the year as soaring prices hit growth.
AUD/USD
The currencies of Australia, New Zealand and Canada strengthened against the US dollar. The Australian unit rose 0.4% to $0.6710
The Aussie pair mostly traded in the 0.6650-06750 range this week. It peaked on Thursday, with the pair trading high at 0.6768, while the week's low was well below the weekly range. The low of the week is 0.6638. The Australian will close the week at 0.6720.
The main drivers were Chinese optimism about stimulating economic growth in 2023, as well as fluctuations in the USD based on US economic data. Markets may be a bit overreacting to global risk sentiment given the worsening COVID situation in China, which could put the Australian dollar at risk for further weakness in the coming week as well as in the first quarter of 2023.
Source: investing.com, finance.yahoo.com
