In this article, we have covered the highlights of global market news about the GBP/USD, EUR/USD, NZD/USD and USD/JPY.
GBP/USD declines to 1.2350 due to unfavorable UK retail sales and Fed worries
UK Retail Sales fall short early on Friday, pushing the GBP/USD to a new intraday low at 1.2350. Recent hawkish remarks from Bank of England (BoE) Governor Andrew Bailey and optimistic JP Morgan predictions support the Cable pair.
In contrast to market predictions of a 0.5% increase and -0.4% prior readings, UK retail sales for December showed a 1.0% MoM decrease. The GBP/USD declined following the vital statistics since the UK Retail Sales account for a large portion of the British Gross Domestic Product (GDP).
According to Bank of England (BoE) Governor Andrew Bailey, the decrease in December inflation is the first indication that a turning point has been reached. The decision-maker also states that they anticipate a recession, although they believe it will be brief by historical norms.
JP Morgan provided a more optimistic perspective for the UK interest rate in Q2 2023, forecasting it to rise to 4.5% from the previous estimate of 4.25%. Similarly, the investment bank anticipates an improvement in the UK’s Fiscal Year 2023 (FY2023) GDP growth to -0.1% from -0.3% in earlier predictions.
The GBP/USD traders seem to be on edge due to the UK’s discussions about cutting gasoline taxes and the likelihood that the wealthy in Britain won’t get any more tax breaks in the next budget.
EUR/USD: The ECB’s hawkish tone points to near-term upside risks – ING
Since the ECB disappointed market expectations of lesser rate increases, economists at ING anticipate that the EUR/USD pair may test the 1.0900/1.0950 region.
The ECB dovish rumor was short-lived. “The ECB responded to rumors earlier this week claiming 25 bps hikes were being contemplated with a relatively reasonable degree of resistance. The minutes from the December meeting virtually verified the mounting pressure from the hawks in the governing council as Christine Lagarde reinforced her previous harsh comments yesterday.
This is encouraging for the Euro, and as long as US data is weak, EUR/USD should profit from a favorable rate difference.
“A test of 1.0900/1.0950 appears on the cards next week, but things may be quite calm today given the Eurozone calendar is relatively empty and Christine Lagarde should not surprise with anything new when she talks again in Davos,” said a trader.
NZD/USD climbs beyond 0.6400 as USD fails to applaud aggressive Fedspeak.
NZD/USD is still modestly bought at 0.6415 as Kiwi bulls applaud the optimistic mood during the slow early-Friday trading hours. The quotation does this while preparing for the second straight weekly gain and reversing the day’s losses.
The risk-taking attitude may be related to expectations of more Chinese stimulus, especially in light of the People’s Bank of China’s (PBOC) fifth consecutive month of inactivity. Similarly, the Federal Reserve’s (Fed) rate raise trajectory may face obstacles due to unfavorable US statistics.
On Thursday, the Philadelphia Fed Manufacturing Survey Index increased as US Unemployment Claims reached their lowest levels since late April 2022. Though earlier supported by lower wage growth and activity data from the US, the US Building and Housing Starts report joined the previously released negative US Retail Sales and Producer Price Index (PPI) to fuel worries of a recession in the biggest economy in the world.
It should be noted that the Visitor Arrivals for November and the Business NZ PMI for New Zealand both declined in their most recent data, posing a challenge to recent Kiwi pair purchases.
In contrast, the US Dollar Index (DXY) increases bids to 102.15 as it consolidates the previous day’s losses, which were the largest in over a week. Fed policymakers favor higher rates in their final public statements before the 15 days following the February Federal Open Market Committee (FOMC) meeting. The recent tensions surrounding Taiwan seem to be testing the NZD/USD bulls.
USD/JPY retakes 129.00 and beyond amid minor USD gains and a favorable risk tone
On the last day of the week, the USD/JPY pair draws some buyers and gradually moves back over the 129.00 level throughout the Asian session. On the other hand, spot prices are still stuck in the same range they’ve been in since the start of the week, so optimistic traders should exercise care before setting up for more intraday gains.
The US Dollar receives some support from rising US Treasury bond rates, ultimately serving as a tailwind for the USD/JPY pair. In reality, amid ambiguity surrounding the Fed’s rate-hike plan, the standard 10-year US government bond yield rose from Thursday’s weakest point since mid-September.
In actuality, the markets have been reflecting a higher probability of a lower 25 basis point Fed rate rise in February. However, the positive US macro data published on Thursday and the recent hawkish comments made by several Fed officials indicate that borrowing rates are likely to stay high for a more extended period, which benefits those who are bullish on the USD.
In addition, the safe-haven Japanese Yen is weakened, and the USD/JPY pair is supported by an upbeat atmosphere in the equities markets. Following the People’s Bank of China’s (PBoC) decision on Friday to maintain its benchmark lending prime rate at record lows for a fifth consecutive month, investors are now more optimistic about a rebound in the second-largest economy in the world.
Meanwhile, new concern that strong inflation may encourage the Bank of Japan (BoJ) to adopt a more hawkish approach later this year has limited the upside for the USD/JPY pair, at least temporarily. Recall that the BoJ opted to maintain its current monetary policy settings earlier this week, despite expectations for more hawkish signals.
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