Weekly Forex Market Recap: Dec. 13 – 17 (2024)

Omicron continued to dominate risk sentiment this week, traders briefly focused on the slew of monetary policy statements from the major central banks.

Overall, it was another week where we saw safe havens outperformed, but the top spot went to the British pound thanks to a surprise move from the Bank of England.

Notable News & Economic Updates:

State Bank of Pakistan increases key target rate by 100 bps to 9.75%; raises FY22 inflation forecast to 9%-11%

Oil dips to $70 this week as Omicron concerns dominate

Asian Development Bank cuts Asia GDP outlook as new variant poses risks

Federal Reserve accelerates bond tapering, hints at two to three rate hikes in 2022

Bank of England surprises market with an 8-1 vote to raise interest rate from 0.10% to 0.25%

ECB to slow down Pandemic Emergency Purchase Program (PEPP) buys until it ends in March but temporarily double its Asset Purchase Programme (APP) purchases to aid transition

Study from Imperial College London warns that Omicron variant can get around previous covid infection

Study from Hong Kong University showed that omicron variant replicates 70 times faster in human airways than delta variant

Mexico’s central bank hiked interest rate by 50 basis points to 5.50%

Federal Reserve Governor Christopher Waller says rates may rise as early as March 2022

Intermarket Weekly Recap

Risk aversion was the name of the game this week, fueled by a rising stream of pandemic related developments around the world. From a record number of new cases since the pandemic began in the U.K., to tightening restrictions across Asia, and reports of Omicron’s higher transmission abilities, the odds are rising that this newest variant could damage economic growth in the coming weeks and months.

With all of that going on, traders also had to prepare for the world’s top central banks as the Federal Reserve, Bank of England, European Central Bank and Bank of Japan gave their final monetary policy statements of the year. Most notable from that basket of events was arguably the Bank of England, who some thought would hold off on raising rates due to the Omicron variant spreading quickly in the U.K. But instead, they raised interest rates due to persistent inflation pressures and a tightening labor market.

The Federal Reserve sparked a broad market volatility on Wednesday as risk assets popped higher with a layer of global macro uncertainty passing after the event. It’s also possible that with the Fed still providing monetary support through Q1 2022 (and leaving the door open for more support if needed), traders were confident to take on more risk after the event.

But by the end of the week, risk aversion behavior prevailed as traders likely refocused on the pandemic, and possibly on the fact that interest rates will tighten in the U.S. and U.K., a scenario that could slow down economic growth along with the pandemic. Equities, bond yields, oil and crypto are all ending the week in the red, while the U.S. dollar and gold prices are set to close the week in the green.

In the forex market, this translated to another week of outperformance by the safe haven major currencies, with the British pound joining topping that group thanks to positive economic updates from the U.K. and the interest rate hike from the Bank of England. The Canadian dollar took the bottom spot despite strong inflation & jobs data from Canada, suggesting that broad negative risk sentiment and falling oil prices were likely the main drivers for CAD’s under performance once again.

USD Pairs

U.S. Producer prices increase 0.8% m/m in November; soar 9.6% y/y

Congress passes debt ceiling increase, sending it to Biden to avoid default hours before deadline

U.S. Retail Sales: +0.3% in November; October revised to 1.8%. Core Retail sales: +0.2%

Fed will aggressively dial back its bond buying, sees three rate hikes next year

December Flash US Manufacturing PMI at 57.8 vs. 58.3 in November

GBP Pairs

UK declares ‘Omicron emergency’, to give booster shots to all above 18 from this week

Rightmove: number of U.K. homes for sale falls to record low in December

U.K. took £12.6B Brexit hit on trade in October

U.K. claimant count down by 49.8K vs. projected 31.5K drop; U.K. average earnings index down from 5.9% to 4.9% vs. 4.6% forecast

BoE votes 8-1 to raise UK interest rates to 0.25% from 0.1%

U.K. Flash Composite Output Index falls to 53.2 in December vs. 57.6 in November

UK retail sales by 1.4% in Nov (+0.8% expected)

EUR Pairs

Germany’s wholesale inflation at record high (+16.6% y/y) in November

Eurozone industrial production rose by 1.1% vs. 1.2% consensus

Spain November inflation remains at 29-year high, pushed by food and fuel costs

European Central Bank cuts pandemic bond buying, but pledges further stimulus

December Flash Eurozone Manufacturing PMI falls to a 10-month low of 58.0 vs. 58.4 in November

Germany Producer prices in November 2021: +19.2% on November 2020

Ifo institute said Germany business climate index fell to 94.7 in December from a revised 96.6 in November.

November Annual inflation up to 4.9% in the euro area; Up to 5.2% in the EU

ECB officials warn of inflation shift as upside risks mount

CHF Pairs

Swiss Producer and Import Price Index rose by 0.5% m/m to 105.2 in December

Economists Call for Swiss National Bank to Create $1 Trillion Sovereign Wealth Fund

Swiss National Bank sticks to loose policy, diverging from Fed and others

CAD Pairs

Bank of Canada renews 2% inflation target, adds jobs to mandate

Canada Government Budget estimates released

Canadian inflation at 18-year high at 4.7% on supply chain woes

Canada adds231,800 jobs in November; the most jobs in 8 months -ADP

NZD Pairs

New Zealand food prices fell 0.6% m/m and 4.0% y/y in Nov.

Treasury: New Zealand to return to budget surplus in 2023/24, two years ahead of schedule

New Zealand economy shrank 3.7% in Q3 vs. projected 4.1% contraction

New Zealand business sentiment slides in December. 23.2% of respondents expect the economy to slow

AUD Pairs

Australian NAB business confidence index down from 20 to 12

Australian Chamber–Westpac Survey of Industrial Trends: 50.8 in Q4 vs. 51.2 in Q3

ANZ-Roy Morgan Australian Weekly Consumer Confidence: 108.0 vs. 107.5 previous

Australia’s consumer sentiment slips by 1% to 104.3, still above 100.0 optimism level in November

RBA head Lowe: No rush to hike interest rates for now

Australian economy added 366.1K jobs in Nov vs. 203K forecast

JPY Pairs

Japanese industrial production figure upgraded from 1.1% to 1.8%

BOJ’s Kuroda says inflation may approach 2% target

BOJ offers 3rd consecutive daily cash injection to combat rising short-term rates

Japanese flash manufacturing PMI down from 54.5 in November to 54.2 in December

BOJ to return corporate bond and commercial paper purchases to pre-pandemic pace starting Apr 2022, extends loan scheme for small companies by six months to Sept