The dollar is holding onto recent gains with the main focus in FX markets today being the central bank actions of the likes of Turkey, South Africa and Hungary. Washington is trying to coordinate a release of strategic oil reserves with China, Japan and a few other Asian nations but most don’t think that this will impact current price levels.
There are a few Fed speakers today and we'll also see whether US jobless claims continue to fall. Further declines can feed the narrative that the US could hit full employment (3.8% unemployment rate?) sooner than the Fed expects and prompt earlier Fed tightening. We continue to expect short-term USD strength.
Yesterday’s Inflation print failed to provide the ‘smoking gun’ that the market was looking for and USD/CAD closed the session higher, well above the 1.26 level. While the CPI number was a disappointment, the headline number is still on an upward trajectory, reaching the highest level since 2003 and still way above the BoC’s 1-3% target. Yesterday’s print continues to suggest that an earlier move from the BoC is likely. The markets now look to retail sales on Friday as the next focal point.
EUR/USD continues to trade on the soft side and has not pulled away from the 1.1300 level. Not helping has been news of record Covid case numbers in Germany, which could dent the recovery in the services sector just as the manufacturing sector is struggling with supply chain disruption. Most analysts are bearish EUR/USD into the end of 2022 as greenback strength continues to dominate.
GBP is holding onto gains after the combination of strong jobs data and high CPI cements views of a 15bp hike BoE hike on 16 December. The UK calendar is quiet today. Tomorrow should be more interesting with retail sales. In the short term, the GBP/USD may trader in a broad 1.34-1.36 range.
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