On the forex market, January ended with a remarkably volatile week. While COVID-19 news dominated currency market analysis, traders also considered other important fundamentals like US stimulus, economic data, and oil prices.
Driven primarily by COVID-19 news and economic data, riskier but profitable assets spiraled downwards. On the other hand, safe-haven currency demand spiked the US dollar upwards to a higher level since the start of the new year.
The Fundamentals That Affected G7 Currency Performance
In the relatively busy week ending 31st January, the following fundamentals affected currency market analysis.
COVID-19 Pandemic Still Determines Economic Progress
Keeping track of the pandemic confirmed new cases decreased globally, but still high. Globally, 103m have been affected by the contagious disease, 2.3 m have succumbed to the disease, and 75m have recovered.
Massive distribution delays hit the coronavirus vaccination rollout, and many developing nations yet to receive the doses. The delays and shortages fueled negative sentiments and delays in economic recovery.
And in a move to contain the contagious disease, several countries, especially those with high infection rates, reintroduced containment measures. Amidst the coronavirus vaccination rollout, they introduced travel restrictions, closed borders, extended lockdown measures, or plans to reintroduce other lockdown measures.
On a fact-finding mission, WHO visited Wuhan city in China to determine the origin of the contagious disease.
Economic Data
On the Global economic data front, several economies, including Mexico and South Korea, reported good Q4 GDP amidst the coronavirus pandemic. Even so, the economic recovery process now largely depends on the covid 19 vaccination rollout success.
Oil Price Analysis
Looking at the oil price analysis, the price went down due to demand worries over covid variants and the slow vaccination rollouts. However, further losses were averted by dwindling US oil inventories and production cuts.
Economic Review And Performance Of The g7 Currencies
Table: g7 performance summary
| Currency pair | 25th Jan | 31st Jan | Average | Percentage change | Remarks |
| USD | 90.373 | 90.569 | 90.431 | 0.396 | Increase |
| GBP/USD | 1.3674 | 1.3701 | 1.3702 | 0.1279 | increase |
| EUR/USD | 1.2137 | 1.2125 | 1.2131 | 0.3493 | decline |
| USD/CHF | 0.8882 | 0.8913 | 0.8890 | 0.6948 | increase |
| USD/JPY | 103.73 | 104.69 | 104.25 | 0.88 | increase |
| USD/CAD | 1.2738 | 1.2777 | 1.2766 | 0.3298 | increase |
| AUD/USD | 0.7708 | 0.7642 | 0.7687 | 0.9591 | decline |
| NZD/USD | 0.7190 | 0.7190 | 0.7193 | 0.0635 | increase |
A High Weekly Gain For USD
According to Investing.com, the greenback registered a 0.38% gain, the highest weekly gain since mid-November. It also marked a 3rd weekly gain in 4-weeks, closing the week at 90.584.
In the week before, the USD had weakened by 0.59% to 90.238. COVID-19 news, economic data, and monetary policies drove the performance of the dollar. Positive economic data in the week suggests a continued economic recovery.
The US registered a 4% annual GDP drop. However, Q4 GDP was lower compared to Q3, setting a weaker momentum for Q1 this year. On the labor market matters, down from 914k, 847k workers filed for weekly jobless claims. However, until the coronavirus is brought under control, much is not expected from the labor market.
On a positive note, Consumer confidence, durable goods orders, and core durable goods impressed, increasing modestly. Core durable goods increased by 0.7% while durable goods increased by 0.2%, and consumer confidence took a positive turn at the start of the year.
Chicago’s PMI improved from 59.5 to 63.8 in January. On the downside, personal spending declined by 0.2%, following a 0.7% decline in the previous month. Other data included inflation, housing sector and trade, but had a muted impact on the currency market analysis.
On the fiscal policy front, the FED came in mid-week and pushed the dollar upwards. FOMC held a meeting in the week and broadly left policy unchanged. It maintained rates at zero and announced that it would continue purchasing mortgage-backed securities and treasury securities at the same current rate.
The usd also increased on risk aversion measures generated by Turmoil in the US stock market.
GBP USD News Forex
Moving on to Gbp usd news forex, UK had a relatively quiet week in the economic diary. Critical financial data that drove the sterling pound’s performance included unemployment rate, employment numbers, and December claimant counts, all skewed to the positive.
Claimant counts increased modestly by 7k, better than the 38.1k increase in the previous month. On the labor market front, employment dropped from 144k to 88k, in the process pushing the unemployment rate upwards from 4.9% to 5.0%.
Coronavirus news and US politics also affected gbp usd currency. Amid the continued spike in the new covid 19 variants in the UK, delays in the vaccination rollout were experienced in the week. The UK and EU had a tussle over coronavirus vaccine distribution.
All the above fundamentals combined forces to uplift the pound by 0.16% to close at 1.3708 to the usd. In the previous week, the sterling pound had increased by 0.71%.
USD/CHF
Switzerland had a tough week, and the AstraZeneca vaccine, coronavirus infections, UK’s monetary policy, and economic data drove the Swiss franc. The Swiss franc weakened against the dollar because of the strengthening of the US Dollar, covid 19 spikes, and vaccines rollout.
The EU-UK vaccination tussle also weakened the swiss franc. At the end of the week, the Swiss franc lost 0.6948% to the greenback, closing at 0.8882.
USD JPY Analysis
In the far east, Japan had a relatively busy week on the economic calendar. Japan posted negatively skewed financial data. Industrial production reduced by 1.6%, with retail sales dropping by 0.3%.
Positively, consumer prices fell by 0.4% but were not enough to pull it out of the red zone. COVID-19 continuing spikes and the containment measures were negative to the Japanese yen. Moreover, the ongoing vaccination rollout was also negative to the Yen.
Usd jpy analysis shows that the Yen shed off 0.87% to close at 104.68 against the US Dollar. In the preceding week, the Yen had improved by 0.07%.
Euro Forecast
In the Eurozone, COVID-19 news and economic data affected the Euro forecast. And by the end of the week, the Euro contracted by 0.29% to 1.2136 against the greenback. In the week before, the Euro also contracted, dropping by 0.74%.
On the pandemic front, coronavirus pandemic and lockdown measures weighed heavily against the Euro. The infection rate though decreasing across the Eurozone is still high. Because of the acute infections, Europe introduced travel bans and other containment measures that worked against the Euro.
Delayed vaccination distribution in the Eurozone did not help the Euro, either. On the economic data front, the statistics were skewed downwards. Consumer confidence drooped and inflation pressure increased by 1.0%. GDP figures also failed to impress, only growing by 0.1%.
While the Eurozone’s economy performed badly, on the other side, the US recorded a robust economy. General strengthening of the dollar supported by negative sentiments and Turmoil in the US’s equity market pushed the Euro downwards.
ECB also flexed its muscles and hinted at economic recovery interventions. Klass Knot, a European Central Bank council member, hindered that the bank could reduce deposit rates to even below zero. However, the bank left the bond-buying program and rates unchanged.
USD/CAD
With limited economic data, Canada had a quiet week in the financial diary. Though skewed to the positive, Canadian economic data was not sufficient to positively impact Loonie’s currency market analysis.
On the financial data front, the Canadian GDP grew by 0.7%, and December RMPI figures improved by 3.5%. However, negative sentiment emanating from the gloomy global economic outlook and drop in crude oil demand weighed against the Canadian dollar.
More damage to the Loonie came from the increasing coronavirus new cases and lockdown measures. Supported significantly by the positive economic data, the Lonnie slumped modestly by 0.35% to 1.2777 against the greenback. In the previous week, the Loonie had contracted dismally by 0.01%.
AUD/USD The Week’s Biggest Loser
It was a terrible week for the Australian dollar, which went down by 0.92% to close the week at 0.7644 against the greenback. Economic data and covid 19 news affected currency market analysis of the Australian dollar.
The Australian dollar weakened due to two significant factors. One, increasing coronavirus cases and lockdown measures. Two, Turmoil in the US equity market significantly pulled this commodity-linked fx currency.
In a quiet week, Australia posted mixed economic data – inflation figures jumped from 0.7% to 0.9%, and business confidence dropped from 12 to 4. On a positive note, private sector credit cards rose by 0.9%.
NZD/USD
Meanwhile, the kiwi dollar ended the week slightly up by 0.06%, closing at 0.7193 against the greenback. Covid 19 news and economic data affected the kiwi dollar currency market analysis.
On the economic data front, imports dropped drastically, with the export improving modestly due to increased breathing equipment demand. The continued covid 19 spikes and containment measures weighed heavily against New Zealand’s economy and ultimately weakened the kiwi dollar.
However, a slight rebound on Friday linked to increased consumer confidence helped pull it out of the red zone.
Conclusion
Except for the British pound and kiwi dollar, the greenback gained against all other g7 currencies, with the Australian dollar being the worst performer.
The ongoing coronavirus pandemic and poor distribution coupled with covid 19 vaccines’ shortages will continue to undermine forex currency market analysis several weeks to come.
Related: Currency Sentiment Analysis From 18 Jan to 24 Jan, 2021