Home Daily Commentaries Upcoming inflation data hints at a weak US dollar

Upcoming inflation data hints at a weak US dollar

Tuesday 10 January, 2023

Daily Currency Update

Market’s attention now focuses on US inflation data which is set to be released on Thursday. Inflation is feared to remain almost constant in December. FED policy outlook is in focus, officials are still sticking to their updated guidance that rates are likely to rise above 5.00% this year to fully get on top upside inflation risks. USD remains to be under pressure in the lows. The mixed results from the US Nonfarm Payrolls for the month of December (Friday) appear to have reignited the idea of a possible pivot in the Fed’s policy in the upcoming months. This contrasts with the message from the latest FOMC Minutes, where the Committee advocated the need to remain within a restrictive stance for longer, at the time when it ruled out any interest rate reduction for the current year. Additionally, the tight labor market, still upstretched inflation and the resilient economy are also seen supportive of the firm message from the Federal Reserve and its hiking cycle. The USD Index (DXY) keeps the inconclusive performance well in place following the opening bell in Wall St. on Tuesday, trading just above 103.00 amidst a cautious tone.

Key Movers

The World Bank announced on Tuesday that it expects the global economy to grow by 1.7% in 2023, down sharply from 3% in June's forecast. Growth outlook dimmed by effects of monetary tightening, slowdowns in US, Eurozone, China and Ukraine war spillovers. World Bank sees Eurozone GDP flat in 2023 vs 1.9% growth in June forecast due to soaring energy costs, rising borrowing costs. China's 2022 growth slowed to 2.7% due to COVID lockdowns but will recover to 4.3% for 2023. EUR/USD is swiftly seen to rebound to 1.075 levels as the USD was notably seen to weaken. GBP/USD too has shown a rebound and was noted to rise above 1.2170 levels in the second half of the UK trading hours (last seen trading at 1.2147 levels). The modest gains observed in Wall Street's main indexes following the opening bell seems to be restricting the USD’s upside. Canadian dollar was seen extending its gains yesterday after the jobs data. USD/CAD pair edges higher on Tuesday and for now, seems to have cracked a two-day losing streak to its lowermost levels since Nov, 25, 2022. Low to moderate action around crude oil prices, amidst mixed economic indications, fails to provide any stimulus to the commodity linked dollar. Though the latest optimism over China’s biggest pivot away from its strict zero-COVID policy did lend some support to the black gold. That said, worries that a deeper global economic slump will hurt fuel demand restricts any meaningful upside for oil prices. There were no major market-moving economic releases, either from the US or Canada. Oil prices were little changed on Tuesday, giving up some of the gains from the previous session. Markets are awaiting more clarity on the FED’s plans for rate hikes to gauge the impact on the economy and fuel demand. Last seen trading at 74.66 levels.

Expected Ranges

  • EUR/USD: 1.0713 - 1.076 ▲
  • GBP/USD: 1.2111 - 1.2207 ▲
  • AUD/USD: 0.686 - 0.6948 ▼
  • USD/CAD: 1.336 - 1.3439 ▲