The news is by your side.

Daily FX 26.01.22: Further Sharp Currency Moves To Dominate Pound Vs Euro, Dollar

Markets Braced for Federal Reserve Policy Decision and Wall Street Reaction, Further Sharp Currency Moves in Prospect

Volatility in equity markets has eased slightly, but underlying tensions remain high. In this context, there is likely to be only a brief period of stability in Europe on Wednesday before the Federal Reserve policy decision triggers another round of high volatility across all asset classes including exchange rates.

Pound US Dollar Exchange Rate Outlook

The Pound to Dollar (GBP/USD) exchange rate briefly dipped to 3-week lows just below 1.3440 on Tuesday before recovering to just above 1.3500.

The fluctuations in risk conditions tended to dominate moves with GBP/USD rallying as equity markets attempted to stabilise.

bannerThe CBI industrial survey held firm for January with strong upward pressure on costs, although the main domestic focus was on politics.

The long-awaited report into Westminster social gatherings is likely to be released on Wednesday, but reaction to the Federal Reserve policy statement is likely to have a much more substantial impact.

There will be scope for a GBP/USD gains recovery if the Federal Reserve statement is less hawkish than expected, but gains are likely to be limited with the potential for at least a temporary slide to 2022 lows if the Fed adopts a very hawkish stance.

Euro (EUR) Exchange Rates Today

The Euro to Dollar (EUR/USD) exchange rate dipped to lows near 1.1270 on Tuesday before recovering ground to settle just below 1.1300.

The Euro will continue to be vulnerable due to tensions in the Ukraine amid fears over military action by Russia.

There has, however, been some reluctance to sell the Euro to fund investment in high-yield assets given vulnerability in equity markets.

Overall yield spreads will remain negative for the single currency.

US Dollar (USD) Exchange Rates Outlook

The US dollar was again mixed on Tuesday with little overall net change as the US currency failed to hold intra-day gains.

The Federal Reserve decision will dominate on Wednesday with expectations that the US central bank will signal an interest rate hike for the March policy meeting.

There is an important debate whether the US currency has priced in a rate hike and there are also expectations that there will be notable month-end dollar buying.

Bank of America expects a hawkish policy stance; “The Fed will announce the last round of asset purchases at the Jan FOMC meeting, and we see risk for a further hawkish pivot. Chair Powell is likely to signal the first hike at the March meeting and note that every meeting is live.”

The bank added; “In our view, a hawkish FOMC this week should serve as a key catalyst for another leg of US dollar appreciation.”

Other Currencies

Global risk conditions have continued to dominate exchange rates and Sterling crosses with further sharp moves on Wall Street having a global ripple effect.

The Pound to Yen (GBP/JPY) exchange rate secured a limited gain to around 153.90 while the Pound to Swiss franc (GBP/CHF) exchange rate also posted a net recovery to near 1.2400.

The Pound to New Zealand dollar (GBP/NZD) exchange rate re-tested 17-month highs just above 2.0235 before a retreat to near 2.0200.

The Day Ahead

Interest rate decisions in North America will tend to dominate during Wednesday.

The Bank of Canada (BoC) will announce its latest policy decision after the US open with the long-awaited Federal Reserve policy statement and Chair Powell press conference after the European close.

Money markets are expecting that the BoC will raise interest rates, although the bank may limit action to a hawkish hold and promise of a hike in April.

Overall risk conditions will still be important for overall asset classes with markets continuing to monitor the Ukraine situation.

The latest New Zealand inflation data will be released after the US close which will have a significant impact on Reserve Bank of New Zealand policy expectations.

Read More : Daily FX 26.01.22: Further Sharp Currency Moves To Dominate Pound Vs Euro, Dollar

You might also like
Leave A Reply

Your email address will not be published.