Daily Market Update

U.S. Dollar sinking post-CPI, Highest since 1980s

January 12, 2022

The U.S. Dollar is trading in less favorable ranges this morning as the risk-off sentiment wanes.

Overview

Investors and traders are already jumping ahead to price in three to four interest hikes for this year to combat inflation. Now equities hope higher-than-expected earnings remain a trend so that the Fed’s tightening concern is set aside.Regarding the contractionary measures, Fed chairman Jerome Powell will be used to combat inflation from getting too out of control, but to cool off expectations of a very high-performing economy like the year 2021. He stated things could slow down a bit and to be cautious of that. In our opinion, that is his way to return to his more dovish mentality and not go off sounding too hawkish. It could give room for the Fed to change their mind later.Headline inflation in the form of Consumer Price Index figures came in slightly above the expectation with a month-over-month change in December of 0.5% vs. 0.4%. At the time of writing, the numbers are benefitting all currencies across the board against the dollar. One thing to note is that Real Average Weekly, as well as Hourly Earnings, contracted more than expected at (-2.3%) vs. (-1.9%).

 

What to Watch Today…

  • No major economic events are scheduled for today

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EUR

The Euro is getting mixed messages, but at the moment it is establishing a positive run based on some positive items. Industrial Production for the whole Euro-zone expanded by 2.3% vs. a low estimate of just 0.3%. Year-over-year there was a (-1.5%) contraction, but the quick pace of improvement is a sign of economic recovery going right.Nevertheless, European Central Bank Chief Economist Philip Lane once again hit the dovish bell by saying that rate hikes are unlikely in 2022. His reasoning in part is due to what keeps ECB Head Christine Lagarde convinced of the wait-and-see approach: wages have not increased significantly enough to merit tightening borrowing costs.

Regardless, Euro seems bound to appreciate if Lane and Lagarde are forced to combat high inflation. Any possibility of contractionary policy action greatly improves prospects for Euro appreciation for the remainder of the year.

 

GBP

Prime Minister Boris Johnson is not resigning, but he did offer a rare apology for having gone to a Garden Party, completely violating protocols for gatherings as the country copes with Omicron.

His opposition is asking for him to quit after what they feel is yet another sly at COVID measures that all citizens have to abide by. Not all seems well in Britain and there could be a serious call for general elections. Pound thus far not suffering, instead rising with all other peers.

 

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