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Market predictions and forex forecasts for the week of 17 January 2022.

Weekly market assessment for the week ahead

Week starting 17-01-2022

 

USD

  • The USD was the poorest performer in the forex markets last week, as inflation and Fed quantitative tightening fears continued to ease. The Dollar index lowered by 0.58%, closing off the week at 95.17. This marks the fourth consecutive week of Dollar losses in the market.

  • The US inflation rate for December was 7% (YoY), increasing from the 6.8% reading in November. Energy was the biggest contributor to the upwards price pressure, with gasoline prices surging by 49.6%.

  • This week, US data releases include the December figures for building permits and housing starts. Building permits are forecast to move towards 1.72 million, following a 3.6% increase in the month prior. Housing starts is expected to come in at 1.65 million, after an 11.8% uptick in November. Existing home sales numbers for December will also be released.

EUR

  • Movement on the EUR has been mixed in the past week due to the currency’s volatility. The weaker USD and GBP have propped up the common currency’s short-term prospects. The EUR traded at 0.832 against the Pound on Tuesday, the lowest it has been since February 2020.
  • However, the EUR remains surprised by higher inflation and a divergence in monetary policy with the US. Prospective rate hikes are not as forthcoming. European Central Bank (ECB) officials have reiterated their stance for rate hikes in 2023 at the earliest. Meanwhile its US and UK counterparts are already in talks to increase their rates during 2022. This will impact their carry trade potential and continue to weigh the EUR down for now.
  • On the data front, unemployment fell by 0.1% and month-on-month industrial production increased to 2.3% from -1.3% for the month prior. This is indicative of an ongoing economic recovery as fears around the COVID-19 pandemic dissipate.

GBP

  • Last week, the UK released its balance of trade figures for November. The UK trade surplus rose from £0.151 billion to £0.626 billion, despite an expected decline.
  • The UK’s GDP increased by 0.9% during November, exceeding analyst forecasts, after the 0.2% uptick in the previous month.
  • This week, the UK’s inflation data, employment figures and retail sales data will release. The inflation rate is expected to come in at 5.1%, after a 5.2% recording in the previous month.
  • The unemployment rate is expected to remain at 4.2% for November, while the Claimant Count Change is forecast to be -36,000 for December. Additionally, retail sales are expected to decline by 0.6% (MoM) after increasing by 1.2% in the previous month.

ZAR

  • Last week, the Rand strengthened against major currencies as more and more countries took South Africa off the travel ban lists that were in force during the initial wave of Omicron. The Rand is currently trading at 21.08, 17.60 and 15.42 against the GBP, EUR and USD respectively.
  • However, the local economy in South Africa will be hard hit this year, as Eskom has set its eyes on a large price hike for electricity. An increase of 20.5% has been proposed by Eskom but business chambers and provincial governments are already fighting back by filing papers against the absurd move.
  • There is not much happening in South Africa this week apart from the inflation rate data that is due for release on January 19. The year-on-year inflation rate is expected to be 5.7%, after the 5.5% recording in the month prior. Month-on-month inflation is expected to be 0.4%, which would add to the 0.5% uptick in the previous month.

AUD

  • Last week, the Australian balance of trade figures for November were released. Australia’s trade surplus shrank from AUD 10.781 billion to AUD 9.423 billion during the month, exceeding the forecasted fall to AUD 10.50 billion. Additionally, retails sales growth came in at 7.3% for November, adding to the 4.9% growth in October.
  • This week, Australia will release its December employment numbers. The unemployment rate is forecast to remain at 4.6%, while approximately 50,000 jobs are expected to have been added to the job market during the month. Additionally, the Westpac Consumer Confidence Index for January is due for release.

NZD

  • Last week Tuesday, the NZD reached 2.014 against the Pound. This is the weakest it’s been against the Pound since the 24 August 2020. In the greater scheme of things, the NZD weakened against five and strengthened against four of its main trading partners.
  • In terms of data for the week to come, we can expect the balance of trade pertaining to December to be released on the 18 January 2022. The balance of trade is expected to revert from a deficit of NZD -864 million to a surplus of NZD 343 million.
  • Later this week, the inflation rate for the fourth quarter of 2021 should be released. The third quarter of 2021 had the highest inflation rate since 2010 at 2.2%.

If you would like further information on the market along with personalised hedging strategies for you or your business, you can get in touch with our team at fxhedging@sableinternational.com.

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