The dollar mounted a modest comeback yesterday – and saw some decent gains against commodity currencies. This came after the ECB delivered a very hawkish message yesterday. The FX market reaction proved instructive of how investors are looking at the world right now, i.e. through the lens of growth and whether the economic landing in 2023 will be soft or hard. Slowdown fears will remain in the a real concern and this looks like a poor environment for equities and commodities. Check economic calendar events in real time.
The greenback is edging above yesterday's high against the Canadian dollar and traded around CAD 1.3680 in the European morning. The recent highs stalled near CAD 1.3700, and a break of it today could spur a move toward CAD 1.3800. Weaker equities and oil are doing the Loonie no favors. We note a steady and sustained improvement in Canadian data surprises in the past few weeks which highlights the underlying resiliency of the Canadian economy. Observe the USD/CAD trends.
The ECB delivered a hawkish surprise at its December meeting, signaling a more aggressive rate hike path in coming months. There are many doubts about the resilience of the Eurozone economy in coming months in the face of persistent stagflation and tighter financial conditions. Today focus will be on the preliminary December PMIs out of the Eurozone. The data could highlight the downside risks to the growth outlook given the persistent stagflation headwinds.
The GBP has come under selling pressure by a combination of weak risk sentiment and a ‘dovish’ rate hike by the BoE. While the BoE hiked rates by 50bp yesterday and signalled that further tightening is needed in order to regain control over inflation, the voting split confirmed that the MPC remains deeply divided on the need to tighten aggressively further. Today, focus will be on the UK retail sales data for November and the preliminary PMIs for December.
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