The reflections of the latest ECB communications did not spare the currency market. Immediately after the news, the single currency rose to 1.14 dollars (today it is at 1.14226, -0.12%), leaving the greenback to finish the week at a low and increasing on all the other main currencies except than on the Swedish krona. “Traders ‘attention will continue to shift back and forth between central bank announcements and inflation data, factors that will dominate currency markets for the foreseeable future. This week, all eyes are on the States’ inflation report. United for the month of January of Thursday “, explain the analysts of Ebury. The interventions of ECB officials will also be at the center of attention,
The single currency’s rally hasn’t stopped even after last Friday’s US payroll data. These findings reminded investors that the US economy remains healthy enough to justify the rate hike cycle that the Fed intends to start in March. “The idea that the downward shift of the ECB could at least be a shock absorber to the downside of the euro / dollar exchange rate seems, therefore, to have convinced foreign currency investors. The Fed is still set to increase more than the ECB, with differentials interest rates that have yet to rise in favor of the dollar. However, for the dollar to appreciate more against the euro, the Fed squeeze should accelerate even beyond the current price of the US forward curve, “analysts explain. On the other hand,
Furthermore, for experts, the euro / dollar rally is also set to face many macroeconomic tests as early as this week, the first being the US CPI inflation data for January which is likely to be significant again. After the latest news from the BoE last week, the pound also rose, which recorded a significant rise against the dollar, but had problems coping with the massive rally of the euro after the ECB. The focus on central bank policy will continue this week, with speeches by the chief economist on Wednesday and Governor Bailey on Thursday. In any case, the latest data on the country’s GDP, which grew by a solid 1% in the last quarter of last year as expected, and likely to help the UK hold on to gains made after the latest BoE rate hike. It is therefore probable that looking at the pound / greenback exchange rate this should remain in the 1.35-1.36 range, while the more solid euro / dollar can offer the cross between the single currency and pound sterling a downward cushion at around 0.84. . “Overall, the outlook for aggressive hikes and a still cheap valuation bode well for the pound in 2022,” concluded Ebury. (All rights reserved)
