The EUR/USD Pair Is Still Above 1.0700$, The USD/JPY Pair Was Little Changed
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The US dollar improved slightly against its major trading partners early on Tuesday.
The National Federation of Independent Business's monthly small business sentiment reading fell further in December as small businesses continue to struggle with high inflation that is dragging down profits. The economic outlook has deteriorated further this year.
Markets are increasingly doubting whether the Fed will need to raise interest rates above 5% to cool down inflation as the effects of its aggressive rate hikes last year are already being felt in the economy.
The focus for today will be Fed Chair Powell’s comments.
USD/JPY
So far, the Japanese yen has changed little against the dollar this week. USD/JPY was little changed on the news, but the Bank of Japan’s ability to maintain a loose monetary policy setting may come under closer scrutiny.
USD/JPY is currently bullish and trading at 132.2600. In the earlier trading hours, the pair was even below 132.
Japanese inflation appears to be accelerating after the headline Tokyo CPI hit a 40-year high at 4.0% year-on-year to the end of December. This was in line with forecasts, but core CPI was also 4.0% for the same period, above the 3.8% anticipated and 3.6% prior.
EUR/USD
EUR/USD has lost its traction and declined toward 1.0700 in the early American session on Tuesday. The EUR/USD was even above 1.0750 today. But the current level shows that the pair failed to break through the 1.0740 level, and the daily chart shows that the pair is barely down. It is possible that the EUR/USD pair will drop below 1.0700.
While the US dollar remains under pressure from lower rate expectations, the Euro continues to be bolstered by the ECB’s insistence that rates will need to go higher to dampen ongoing price pressures.
With the Fed coming to the end of its rate hike cycle, and with the ECB still in full flow, rate differentials between the two will continue to favor Euro strength.
The EUR/USD pair as focus shifts to FOMC Chairman Powell's speech.
GBP/USD
The British pound traded above to $1.2, near a two-and-a-half-week high against the dollar, which hit Monday, The Cable Market is currently below that level, far from it. Trading is at the time of writing around 1.2120.
The Bank of England's chief economist, Huw Pill, warned of the risk of continued inflationary pressures from a tight labor market, even if natural gas prices stabilize or fall. The UK central bank is likely to raise interest rates again to 4% next month. Meanwhile, markets are divided as to how much more interest rates will rise.
On the data front, all eyes are on the monthly UK GDP figures.
AUD/USD
The Aussie pair stayed above 0.69 in the early hours of trading, but failed to maintain that level and found itself below it again. Currently, the Australian pair is trading around 0.6860.
In addition, the market is also slightly favoring a quarter point hike from the Reserve Bank of Australia (RBA) to 3.35%.
The probabilities may change data on monthly prices of consumer goods and services and retail sales for November, which will be published on Wednesday. After a surprise dip in October, inflation picked up again to an annualized 7.3%, while retail spending is expected to rise by a solid 0.7% thanks to major sales this month.
Source: finance.yahoo.com, investing.com
