Yet again, risk assets delivered another excellent performance in the currency exchange trading market. Led by Australian dollar, risk assets emerged as winners for a second week in a row. Conversely, the haven currencies led by yen settled at the bottom.
Reports show risk-on sentiments dominated the currency market most of the week, uplifting the risk assets. But on Friday, the sentiments shifted to risk-off. This slowed risk assets’ winning streak, but still, the safe-haven currencies closed on the red.
The Fundamentals
Expectations of future rate hikes, spiking oil prices, and inflationary pressure uplifted the comdolls. But on Friday, sentiments changed as Russia geared its preparations to invade Ukraine.
Geopolitical Tensions
On Friday, risk aversion sentiment permeated the market as US and G7 nations requested their citizens to vacate Ukraine Russia. However, Russia continues to build its military presence at the Ukraine border in readiness for an invasion.
NATO response to Russia’s aggressive behavior: First, it requested foreign citizens to move out of Ukraine and Russia. Two, NATO indicated it would respond swiftly to Russia invading Ukraine.
The tension reversed some of the gains made by the risk assets as traders ran to the safety net of the dollar. According to investing.com, risk assets lost significantly on Friday against the dollar.
Crude Oil Prices
Oil is one of the fundamentals that drove currency trading. Therefore, changes in oil prices affect commodity-linked assets. This week crude oil closed the week at 94.88 dollars per barrel, the highest in eight years. Oil rallied on Ukraine-Russia tensions and declining US oil stocks.
Economic Updates
Economic data played a crucial role in the performance of G7 currencies. Inflation and imminent rate hikes caused risk-on before sentiments shifted on Friday. On Thursday, currency traders got more than they expected—shockwaves in the currency exchange trading.
The US inflation exceeded 7.3 percent projection to reach 7.5 percent, the highest in 40 years. The inflation figures got traders worried. Based on the figures, many traders fear the US might hike rates soon to curb the skyrocketing inflation numbers.
The higher inflationary pressure pushed global commodity prices to new highs. The prices leaped 50 percent, the highest in 27 years. But still, the high numbers and expectations of future rate hikes were not sufficient to overcome the gains made by the high-risk assets.
G7 Economic Review and Fundamental Analysis
Table: g7 currencies performance summary
| Currency pair | February 5th, 2022 | February 11th, 2022 | Average price | Percentage change | Remarks |
| USD | 96.392 | 96.073 | 95.630 | 0.621 | increase |
| GBPUSD | 1.3534 | 1.3560 | 1.3544 | 0.2291 | increase |
| EURUSD | 1.1442 | 1.1349 | 1.1411 | 0.8734 | drop |
| USDCHF | 0.9240 | 0.9256 | 0.9248 | 0.0216 | increase |
| USDJPY | 115.12 | 115.41 | 115.51 | 0.18 | increase |
| USDCAD | 1.2667 | 1.2736 | 1.2701 | 0.2194 | drop |
| AUDUSD | 0.7125 | 0.7135 | 0.7150 | 0.8338 | increase |
| NZDUSD | 0.6632 | 0.6647 | 0.6655 | 0.4230 | increase |
US Dollar Market News
The dollar reversed previous losses to close the week in the green territory. For the week, it rallied by 0.63 percent to 96.082. Previously, it slid by 1.84%. According to us dollar market news, inflation and jobless claims significantly supported the dollar.
The inflation rate accelerated to 7.5 percent from seven percent, and initial jobless claims fell to 223 thousand from 239 thousand. Economists had projected claims of 230 thousand.
Consumer sentiments also impacted currency exchange trading on Friday. The consumer sentiment index dropped to 61.7 from 67.2, against a 67.5 projection.
Federal Reserve President James Bullard said he wants to see a 100 bps interest rate hike before July in a CNBC interview. He says that big hikes are needed to combat inflation, which has risen since last year.
Pound Trading
While other major currencies lost against the dollar, the Pound stood ground. It gained 0.24 percent to 1.3564. In the week before, the Pound had appreciated by 0.97 percent. In this week’s currency exchange trading UK economy weighed on pound trading.
UK’s GDP contracted by 0.2 following a previous 0.9 percent growth. Production dropped to 0.2 percent from 0.7 percent. Bank of England chief Andrew Bailey was criticized for telling workers not to solicit pay raises.
Chief economist, Bank of England, Huw Pill cautions against an “aggressive” approach to rate hikes. According to him, the approach to rate hikes could lead the UK economy into recession again.
Euro News Forex
In the currency exchange market, euro depreciated by 0.86 percent to 1.1350. Previously, it had rallied by 2.67 percent. Eurozone had a quiet week leaving the euro’s performance to two economic data: trade data and German industrial production.
Industrial production declined further. It dropped from a previous 0.2 percent decline to a 0.3 percent drop. In the same breath, Germany’s trade data disappointed. The trade surplus narrowed to 6.8 billion euros from 10.8 billion euros.
While the economic data influenced, EU economic forecast on Thursday dominated euro news forex. While the stats influenced, EU economic forecasts drew plenty of attention on Thursday.
EU’s economy to grow four percent in 2022 and 2.7 percent in 2023. The forecast also predicts the current Omicron pandemic wave will end soon. Analysts also predict the supply chain constraints will end over the year.
ECB is waiting for inflation to stabilize at two percent before raising the primary interest rate in other currency trading news. Regardless of what other central markets are doing, the ECB says they won’t increase rates “just yet.”.
USD CHF Exchange Rate
in the currency exchange market this week, Swiss franc lost 0.0216 percent 0.9240 against the dollar. Geopolitical tension and consumer prices boosted usd chf exchange rate. Swiss consumer price index surpassed expectations.
The index rose by 1.6 percent versus a 1.5 percent projection. Russia-Ukraine heightened conflicts on Friday drove up usd chf exchange rate.
Canadian Dollar versus US Dollar
In the currency exchange trading, Canadian dollar continued to rally. It rallied by 0.16 percent to 1.2737. In the week before, it had rallied by 0.10 percent. Canada had a quiet week on the economic calendar except for trade data.
The trade data disappointed Canadian dollar versus US dollar exchange rate. Canada’s trade surplus narrowed to 0.14 billion Canadian dollars from 2.47 billion Canadian dollars. Bank of Canada Governor Tiff Macklem said rates partially depend on business investment. He also indicated the ongoing truck protests would only aggravate supply-chain issues.
Currency Exchange Trading in The Asia Pacific Region
While Aussie and kiwi dollars had a bullish week, Japanese yen was on a losing spree.
AUDUSD Latest Analysis
For the week, Australian dollar rallied 0.92 percent to 0.7137. Consumer and business sentiment data impacted audusd latest analysis. Business confidence reversed previous losses.
The business confidence index rose to 30 from minus 12. In sharp contrast, consumer sentiment index dropped by 1.3 percent following an earlier two percent decline.
The economy and financial market seem to be on different wavelengths. While investors seemed more optimistic about the economy, they grew less confident in finances.
Huw Pill, BoE chief economist, cautions against an “aggressive” approach to rate hikes. According to him, the approach to rate hikes could lead the UK economy into recession again.
Australia announced it would only accept visitors who have received two doses of COVID 19 jab. Reserve Bank of Australia could hike interest rates at least four times this year. AIG service index shot to 56.2 from 49.6.
Retail sales declined by 4.4 percent, and job openings dropped by 0.3 percent.
US Dollar to NZ Dollar Exchange Rate
Kiwi Dollar gained 0.27 percent to 0.6651 against the greenback. New Zealand posted mixed economic data, which weighed on us dollar to nz dollar exchange rate. Business index dropped to 52.1 from 53.7. On the other hand, electronic card retail sales spiked by three percent following a previous 0.3 percent growth.
Yen Rate Prediction
After holding unchanged at 115.260 in the week before this, the yen closed weaker by 0.14% to 115.420 this time around. Early in the week, household spending undermined yen rate prediction. House spending fell below expectations, increasing by just 0.1 percent.
Previously, it weakened by 1.20 percent. Wages dropped by 2.2 percent, the most significant drop in two years. And household spending tumbled by 0.2 percent for the fifth month in a row.
While production prices shot by 8.6 percent, machine tool orders rose to 61.4 percent from 40.5 percent.
Week Ahead
Forex traders expect the following fundamentals to cause volatility in the currency market;
- Ukraine/Russia Crisis escalates as NATO and US prepare for an imminent invasion.
- Economic updates: several nations, including China, are expected to release their inflation reports in the week.
- Rate hikes to curb the skyrocketing inflation rate
- Oil princess is expected to hit $100 per barrel
Next week, the currency exchange trading market could go ballistic with the possibility of Russia’s invasion and inter-meeting rate hike. If the war materializes, traders will run to the safety of haven currencies. In addition, quantitative tightening to curb high inflation numbers could also favor the haven currencies.
Let’s talk again next week! Happy Valentine week!
