On Monday, the Mexican peso was the best-performing currency among the 20 global currencies we track, while the Russian rouble showed the weakest results. The U.S. dollar was the leader among majors, while the Japanese yen underperformed.
U.S. Dollar Index On Monday, the U.S. Dollar Index (DXY) increased by 0.47% after Lael Brainard, the Federal Reserve (Fed) Vice Chair, signalled that the Fed may slow the rate hikes.
Inflation in the U.S. is still very high, so interest rates need to keep growing. However, rate hikes will probably move at a slower pace. According to Reuters, the markets are currently pricing in an 89% chance that the Federal Open Market Committee will slow the rate hikes to a half point at the meeting on 14 December. Another 11% bets for a 75 basis point increase. ‘Fed speakers have set the tone, reminding markets that there is still a lot of work to be done to bring inflation to heal,’ wrote Rodrigo Catril, senior FX strategist at the National Australia Bank. Today’s focus will be on the Producer Price Index (PPI), due at 1:30 p.m. GMT. If PPI comes out stronger than expected, DXY will likely rise above 107.00
XAUUSD The gold price dropped sharply on Monday but later recovered and finished the day essentially flat at 1,771.80
XAUUSD continued to rise during the Asian session, backed by the hopes that the Fed would adopt a less hawkish policy. ‘Gold has had a very strong run from $1,618 per ounce and is now due for some consolidation short term. However, the overall dominant risk remains very much to the upside,’ said Clifford Bennett, chief economist at ACY Securities. Bulls are now targeting 1,800–1,810, but a higher move requires more signals of slowing inflation in the U.S. According to the U.S. Commodity Futures Trading Commission, speculators cut their net-short positions by 78% during the first week of November.
EURUSD EURUSD slightly decreased and finished the day at 1.0325.
The euro rose sharply earlier today due to the general weakness of the U.S. dollar. Fabio Panetta, the European Central Bank (ECB) board member, said that the regulator should continue raising rates ‘but needs to avoid overtightening, as it could deepen an economic downturn.’ Also, the eurozone industrial production rose in September, providing additional support for the euro. Today, traders should pay attention to the release of eurozone GDP data at 10.00 a.m. GMT. A higher-than-expected number will likely push EURUSD above 1.04000.
GBPUSD The British pound lost 0.7% and closed at 1.1752.
GBPUSD surged during the Asian session as the U.S. dollar retreated. Despite disappointing employment figures, which came out earlier today, the British pound managed to rise above 1.18400. The National Institute of Economic Research said that ‘The Bank of England (BoE) will probably need to raise the interest rate to 4.75% to bring inflation back to its 2% target, something only likely to be achieved in three years.’