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16.12.2022, 07:24

Forex Today: US Dollar consolidates recovery gains ahead of PMIs

Here is what you need to know on Friday, December 16:

The US Dollar benefited from the risk-averse market atmosphere on Thursday and outperformed its major rivals with the US Dollar Index gaining nearly 1%. The market mood seems to have improved modestly early Friday, making it difficult for the US Dollar to build on Thursday's rally. S&P Global will release the preliminary Manufacturing and Services PMI report for Germany, the Eurozone, the UK and the US later in the day. The final revision to November inflation figures and October Trade Balance Data will also be featured in the European economic docket. 

On Thursday, the Bank of England (BOE) and the European Central Bank (ECB) both decided to hike policy rates by 50 basis points (bps) as expected. The BOE's policy statement, however, revealed that two members of the Monetary Policy Committee voted to keep the rates unchanged, causing the Pound Sterling to weaken against its rivals.

Later in the session, ECB President Christine Lagarde said in the post-meeting press conference it was obvious that they should expect additional 50 bps rate increases for a "period of time." Elaborating on the matter, Lagarde noted that the information that they currently have predicates a 50 bps increase in key rates in the next two meetings. Although Lagarde's surprisingly hawkish remarks provided a boost to the Euro, the intense flight to safety during American trading hours allowed the US Dollar to preserve its strength. Early Friday, US stock index futures post modest daily gains.

EUR/USD surged to its strongest level in over six months at 1.0737 with the initial reaction to Lagarde's comments but made a sharp U-turn in the second half of the day, closing in negative territory below 1.0630. The pair holds in positive territory above 1.0650 early Friday.

ECB Quick Analysis: Hawks win major concessions, EUR/USD set to rise (assuming quiet spreads).

GBP/USD lost more than 200 pips on Thursday but managed to stage a modest rebound toward the 1.2200 area on Friday. The data published by the UK's Office for National Statistics revealed that Retail Sales in November declined by 0.4% following October's increase of 0.9%. Although this reading came in worse than the market expectation for an expansion of 0.3%, it failed to trigger a noticeable market reaction.

BOE Quick Analysis: Three reasons why Sterling is set to continue suffering.

Fueled by the broad-based US Dollar strength, USD/JPY gained more than 200 pips on Thursday and climbed toward 138.00. Earlier in the day, the data from Japan showed that the Jibun Bank Manufacturing PMI declined to 48.8 in early December from 49 in November. On a positive note, the Jibun Bank Services PMI climbed to 51.7 in the same period from 50.3. Nevertheless, the pair stays on the back foot in the European morning and declines toward 137.00.

The Swiss National Bank raised its policy rate by 50 bps to 1% on Thursday. Commenting on the policy outlook, SNB Chairman Thomas Jordan hinted at further rate hikes by saying, "longer-end of the inflation forecast is slightly going upwards, indicates current monetary policy doesn't guarantee price stability is ensured." USD/CHF, however, shook off the bearish pressure and closed modestly higher on Thursday before going into a consolidation phase slightly above 0.9250 early Friday.

Gold price lost more than 1.5% on Thursday. With the 10-year US Treasury bond yield staying below 3.5%, XAU/USD staged a rebound and climbed above $1,780 on Friday. China's state planner, the National Development and Reform Commission (NDRC), said on Friday that economic growth was expected to continue picking up pace following the implementation of new COVID rules. Markets await announcements following the Central Economic Work Conference.

Bitcoin turned south amid risk aversion and erased the majority of its weekly gains on Thursday. BTC/USD was last seen trading modestly higher on the day near $17,500. Ethereum fell more than 3% on Thursday but didn't have a difficult time holding above. At the time of press, ETH/USD was up nearly 1% on the day at $1,280.

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