January 17, 2022
EUR/USD: Since the beginning of this year, U.S. Treasuries have clearly outperformed their German counterparts. This could be a recipe for a weaker EUR/USD pair, but that has not been the case lately. In fact, the U.S. dollar has been decoupling from local bond yields lately. This may be due to the fact that traders are already ahead of the Federal Reserve’s rate hike bets. In fact, the U.S. dollar has generally declined amid the release of the inflation report, which showed the CPI index had hit a 40-year high. Therefore, it seems more likely that the euro will benefit from markets reevaluating the hawkish Fed, as opposed to the more aggressive ECB.
GBP/USD: The British pound held above $1.37 in mid-January, at its strongest level since late October, helped by strong GDP figures for November, expectations that the Bank of England will raise interest rates in February in an effort to fight inflation, and easing fears over the negative impact of the Omicron variant on the economy. British policymakers surprised investors in December by raising the bank rate from a record low, and markets estimate up to four hikes this year. Elsewhere, rising political uncertainty could hurt sterling, as Prime Minister Boris Johnson has faced calls to resign from some members of his party after admitting that he attended staff drinks during the May 2020 lockdown.
XAU/USD: Gold cut intraday losses as part of a three-day downtrend during the Asian session on Monday. Meanwhile, prices are reacting to the deteriorating market sentiment amid coronavirus fears and the Fed rate hike expectations. Concerns over the rate hike intensified after Friday’s comments by San Francisco Federal Reserve Bank President Mary Daly and New York Fed President John Williams. The lack of important data from the U.S. brings China’s GDP and other key figures to the forefront for immediate direction. Above all, viral updates and concerns about a Fed rate hike will be critical.