London 28/10/2022
The week approaching its end is divided into two sections practically in relation to the foreign exchange market. The US dollar in the first half of the week had downward trends and recovered significantly from Thursday onwards. The announcement of the US GDP for the third quarter of 2022 was an impressive return to a positive sign and even above market expectations. The growth of the US economy in the third quarter of 2.6% was the trigger for the recovery of the dollar. In the rest of the U.S. announcements, durable goods orders took a slight downturn in September while personal consumption expenditure prices fell sharply, a sign that inflation is starting to curb.
In Europe, as expected, the European Central Bank raised interest rates by 0.75% but this was something more or less well-known in the markets and so there was not much volatility for the euro. At the press conference that followed, the head of the Central Bank Christine Lagarde avoided explicitly committing to a new increase in interest rates but stressed that price normalization is not yet over.
Most of the major equity markets still maintain their positive sign despite the correction of the past two days. The picture in the commodity market is mixed with gold having turned negative but oil performing gains. Finally, with corrective trends are bond yields with the U.S. 10-year having fallen in the region of 4%.
EURUSD (current price at 0.9952) is still bullish this week even though it is in correction from Thursday onwards. On Thursday there was an approach to the price zone of 1.01 but the correction that followed pushed the pair below parity again. The main factors that shaped the trend and volatility of EURUSD were the US GDP and the announcement of the 0.75% interest rate hike by the ECB. Also, important factors were other macroeconomic announcements such as German GDP for the third quarter of 2022, which was announced in positive territory and gave a breath of optimism to the European market, which has had an extremely negative investment sentiment lately, in fear of an upcoming recession. The pair is at a critical crossroads and if it manages to exceed 1.01, there are reasonable chances for a further rise. However, as long as it is kept below 1: 1, the downward scenario prevails.
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GBPUSD (current price at 1.1531) is quite bullish this week even if the US dollar from Thursday onwards strengthens significantly. The UK has had no major economic announcements in recent days but expectations from the new Sunak government appear to be working in sterling’s favor. More specifically, the new British Prime Minister in collaboration with the Minister of Finance Jeremy Hunt seems to be planning a completely different economic policy than the previous government with the primary concern of reducing debt and stabilizing prices. An increase in tax rates and spending cuts are planned in order to stabilize prices. If the current picture continues and there is a steady upward reaction above 1.1650, the pair could even be driven to 1.20.
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USDJPY (current price at 147.66) had a lot of ups and downs this week but right now is very close to the weekly open price. Today there have been many important announcements about the economy of Japan. The country’s inflation was announced in September at 3.5%, a rate well above the 3.1% that markets estimated. This announcement may be an alert for the future actions of the Bank of Japan. A few hours later at the Bank’s interest rate and monetary policy meeting, the decision was for interest rates to remain unchanged at -0.1% and in the press conference that followed, the Bank’s head Haruhiko Kuroda gave evidence that very loose monetary policy would probably continue. He also applied a mini criticism of the latest government interventions in the foreign exchange market saying that such moves are difficult to say if they will affect the markets in any way. The weakness of the yen is balanced by the neutrality of the US dollar and the fall in bond yields, and so the exchange rate remains in the price range of 147.50, without any particular orientation.
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