In the end, safe havens once again proved to be a good investment. DESPITE POSITIVE ECONOMIC DATA, the US dollar took the top spot, and the Canadian dollar settled at the bottom.
The Fundamentals
Negative Sentiments
Omicron Concerns
Throughout the week, Omicron-related developments around the globe contributed to negative sentiment. Despite being less lethal, the Omicron variant spread rapidly and may soon become the dominant strain globally.
Investors fear the Omicron variant could hurt economic growth and stifle the supply chain in the manufacturing and retail sectors. A surge in new cases across Europe and the US has led to tighter restrictions and travel bans.
Central Banks Meetings
This week, traders also paid attention to monetary statements from the world’s largest central banks. In the week, the Federal Reserve, European Central Bank, Bank of England, and Bank of Japan released their last monetary policy statements for this year.
As expected, the Fed forward guidance signaled an end to QE purchases by March and a rate hike in 2022. However, Wednesday, the Fed chair indicated tight labor conditions and prolonged inflationary pressure warrants rate hikes soon.
Thursday, the Bank of England surprised investors the most with its hawkish outlook. Amidst the Omicron variant concerns, the Bank raised interest rates catching financial traders by surprise. BoE increased interest rates to 0.25 percent.
The Bank cited tighter labor market conditions and persistent inflationary pressures as significant increases. Also hawkish, the ECB announced an end to the emergency bond purchase program by March.
However, while pausing interest rates hike till 2023, ECB will continue with asset purchase programs till late 2022. Unlike other banks, Japan maintained a dovish stance. The Bank held its ultra-low interest rate target and extended monetary stimulus to small businesses.
Oil Prices
Global oil prices flipped the previous week’s substantial gains to close below $ 70 per barrel. The plunge in oil prices pulled the prices of commodity-linked assets, especially the Canadian buck.
G7 Economic and Fundamental Analysis
Table: g7 currencies performance summary
| Currency pair | 11th December 2021 | 17th December 2021 | Average price | Percentage change | Remarks |
| USD | 96.345 | 96.548 | 96.386 | 0.466 | increase |
| GBPUSD | 1.3216 | 1.3242 | 1.3256 | 0.2035 | increase |
| EURUSD | 1.1283 | 1.1239 | 1.1278 | 0.6365 | drop |
| USDCHF | 0.9225 | 0.9237 | 0.9228 | 0.3040 | increase |
| USDJPY | 113.28 | 113.65 | 113.78 | 0.26 | increase |
| USDCAD | 1.2804 | 1.2886 | 1.2830 | 1.3050 | increase |
| AUDUSD | 0.7129 | 0.7124 | 0.7141 | 0.6554 | drop |
| NZDUSD | 0.6753 | 0.6737 | 0.6762 | 0.8827 | drop |
US Dollar Sentiment
The greenback resumed its weekly gains. After losing 0.03 percent, the previous week, it gained 0.466 percent to 96.548. A 0.67 percent rally on Friday delivered the dollar’s ultimate performance to net seventh weekly gains in eight weeks.
Earlier in the week, inflation, consumer spending, and retail sales impacted US dollar sentiment. After a strong rally of 1.8 percent in October, November retail sales dwindled to 0.3 percent.
The annual inflation rate spiked to 7.7 percent from 7.0 percent. And retail sales rose dismally by 0.3 percent following a previous 1.8 percent surge. On Thursday, jobless claims, private sector, and industrial production drove forex trading news events.
Initial jobless claims rose to 206 thousand from 188 thousand while the private sector dropped slightly to 57.5 from 58. The manufacturing industry also disappointed, with the Philly index sliding to 15.4 from 39.0.
However, industrial production supported the dollar, surging 0.5 percent. While the economic data slightly impacted the forex market, FOMC decisions and projections caused market volatility.
As predicted, the FED accelerated the asset-buying program. It also hinted at three interest rate hikes in 2022.
GBP to USD Forecast
Sterling slipped 0.2035 percent to 1.3242 after rising 0.28 percent the week before. Economic updates, Omicron concerns, and monetary policies impacted gbp to usd forecast. Inflation, employment, and retail sales drove the pound’s strong performance.
Increased employment numbers led to a decrease in unemployment to 4.2 percent from 4.3 percent. And weekly claimant counts declined by almost 50 thousand. Meanwhile, UK’s inflationary pressures continue to rise. Inflation jumped to 5.1 percent from 4.2 percent.
Omicron, which has become England’s dominant strain, significantly affected the private sector. Due to the ongoing pandemic, the UK service sector dropped to 53.2 from 58.5. On Friday, retail sales supported the pound. Monthly sales spiked 1.4 percent, with annualized inflation hitting 2.7 percent.
On Thursday, the BoE’s monetary decision lifted the pound despite the weak economic data.
Euro Dollar Exchange News
The euro continues to lose ground this week. It fell 0.6365 percent to 1.1239 after losing 0.02 percent the previous week. Monday, euro dollar exchange news was influenced by member states’ inflation rates and industrial production.
While consumer prices continue to soar in Europe, industrial production surged 1.1 percent. Private-sector numbers supported the euro in mid-week. Germany’s manufacturing index edged up slightly to 57.9 from 57.4.
But service sector contracted to lower the composite index to 53.4 from 55.4. End week, Eurozone inflation numbers and German business sentiment drove forex trading news events. As predicted, the business index fell to 94.7 from 96.5, and inflation accelerated to 4.9 percent from 4.1 percent.
On Thursday, ECB delivered a more dovish stance on monetary policy. Although the ECB indicated asset purchases end in March 2022, it maintained rates and pledged continuous policy support.
Dollar CHF Forecast
The Swiss franc lost 0.3040 percent against the dollar this week. Previously, it had gained 0.34 percent. Omicron uncertainty, monetary policies, and economic updates affected the dollar chf forecast.
On the economic front, swiss production and import price surged 0.5 percent. And unlike other central banks, the Swiss Bank held a loose policy.
CAD Forecast This Week
According to investing.com, the Canadian dollar tumbled 1.3050% to 1.2886 against the greenback during the second week of December. It had previously appreciated by 0.94%.
Several factors affected the cad forecast this week, including the decline in oil prices, the Fed’s monetary policy, and the Omicron variant. Even though Canada posted positive economic data, its currency could not match the impact of Omicron and Fed monetary policy.
Canada’s annual inflation rate slowed from 3.8% to 3.6% in November, but consumer prices stagnated after rising by 0.6% in October. The Canadian dollar performed poorly despite positive economic updates due to risk aversion.
Asia Pacific Forex Trading News Events
While the Aussie and Kiwi dollars had a bearish week in the Asia Pacific region, the Japanese yen appreciated.
Australian Dollar News
The Australian dollar fell 0.6554 percent this week to 0.7124 after rallying 2.42 percent last week. Consumer and business confidences and employment data drove forex trading news events early in the week.
Improved employment levels supported the Aussie dollar, but weak consumer and business sentiment weighed on it. November’s employment surged by over 366 thousand, bringing the unemployment rate down to 4.6 percent from 5.2 percent.
The Omicron variant dominated Australian dollar news over the week. Australia sealed its borders due to the ascending pressure of the omicron pandemic.
NZD Vs USD Forecast
Following an 8.6 percent rally, the Kiwi Dollar declined 0.8827 percent to 0.6739. This week, negative GDP and business confidence levels weighed on the nzd vs usd forecast.
New Zealand’s third-quarter economy contracted 3.7 percent, mainly due to lockdown measures. Business confidence also took a hit, tumbling to -23.2 from -16.4. Though negatively skewed, the poor economic data were insufficient to sink the kiwi deeper.
USD JPY Trend Analysis
Japan’s woes continued this week. After stumbling 0.57 percent, it fell 0.26 percent to 113.650 against the US Dollar. Early this week, positive economic data boosted the yen. While the manufacturing index remained unchanged at 18, the non-manufacturing index jumped to 9 from 2.
Later in the week, harmful economic data affected the yen’s forex trading news events. First, the trade deficit grew to ¥954.8billion from ¥68.5billion. Second, the production index declined to 54.2 from 54.5, and the service sector fell to 51.1 from 53.0.
Friday’s BoJ policy statement had a muted impact on usd jpy trend analysis. The Bank maintained lower interest rates.
Week Ahead
As the holiday season starts next, we will keep our eyes on
- Economic updates, mainly inflation and prices
- Omicron developments
Risk aversion dominated this week’s forex trading news events. And naturally, haven currencies flourished in such situations, with the riskier assets closing in the red.
Happy holiday and merry season!