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19.12.2022, 06:01

Forex Today: US Dollar stays on the defensive amid a cautious start to the week

Here is what you need to know on Monday, December 19:

As the dust settled over the last week’s central banks’ policy announcements, risk sentiment remains in a weak spot at the start of a new week that will lead up to the Christmas holiday. Investors continue to assess the Fed’s hawkish outlook, which dents the appetite for riskier assets. In addition, China officially reported its first Covid death after the government relaxed restrictions nationwide, as virus outbreaks flares up. China’s covid concerns accentuate the souring market mood. Meanwhile, Chinese state media reported some goals for economic progress, laid out in China's annual Central Economic Work Conference.

However, the US Dollar fails to capitalize on risk-off flows, in the face of the USD/JPY sell-off. The Japanese yen jumped on expectations that the Bank of Japan (BoJ) could potentially unwind its ultra-loose monetary policy, following the news that government could soon revise a joint statement with the Bank of Japan (BOJ) over the latter's inflation target. USD/JPY tumbled to 135.77 lows before recovering above 136.00, where it now wavers.

Meanwhile, the rally in the US Treasury bond yields across the curve amid flattish S&P 500 futures also does little to inspire the US Dollar bulls. The rates on the US government bonds remain underpinned by the hawkish commentary from the Cleveland Fed President Loretta Mester on Sunday. Mester said that she sees rates rising more than most policymakers have forecast. The benchmark 10-year US Treasury bond yields are 1.21% higher on the day at 3.52%, as of writing.

The weakness in the US Dollar could be also attributed to the deepening contraction in US business activity. The S&P Global preliminary US Composite Output Index dropped to 44.6 in December vs. 46.4 previous, as new orders slumped to the lowest level in just over two and a half years.

Among the G10 FX currencies, besides the strong Japanese yen, the AUD/USD pair is also holding gains above 0.6700, despite discouraging Chinese data and Covid concerns. According to a survey conducted by the World Economics Survey, China's Business Confidence Index dropped to 48.1 in December vs 51.8 in November, its lowest since January 2013.

However, NZD/USD is struggling to defend the bids at around 0.6375 while USD/CAD remains pressured below 1.3700 amid rising WTI prices and a weaker US Dollar. WTI is advancing on hopes of an improved demand outlook from China and on US’ decision to buy back oil for its state reserves. However, hawkish central banks’ policy outcomes-induced recession fears keep a check on the black gold’s upside.

EUR/USD is clinging to recovery gains around the 1.0600 region, underpinned by the hawkish ECB policy outlook. The focus now shifts to the German IFO business survey for fresh trading impetus, in absence of top-tier US economic data releases this Monday.

GBP/USD is consolidating gains below 1.2200, having failed to resist above the latter in early Asia. The UK economic challenges amid persistent strikes and recession fears limit the upside attempts in Cable. The BoE’s dovish rate hike also keeps GBP bulls cautious.  

Bitcoin is licking its wounds slightly above the two-week lows of $16,532 reached on Friday.

  • Ethereum price at make-or-break, ETH buyers guess what comes first $1,075 or $1,420

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