Dollar starts 2023 up against rivals, except Japanese Yen

Fed FOMC minutes highlight big data week ahead

Summary

The US Dollar reversed its December slide to kick off 2023 on a strong note against its Rivals except for the Japanese Yen. A favoured gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) soared 1.2% to 104.47 (103.70).

The lone exception was the USD/JPY pair which opened modestly weaker at 130.75 (131.10). Global bond yields slid. The benchmark US 10-year note settled at 3.79% (3.87%).  Germany’s 10-year Bund rate was last at 2.38% from 2.43%.

The Euro (EUR/USD) plunged to 1.0560 from 1.0670 weighed by an unexpected fall in Germany’s Inflation rate. Sterling (GBP/USD) slid 0.74% to 1.1975 (1.2057) against the broadly based stronger Greenback. Against the Swiss Franc, the Dollar (USD/CHF) rocketed 1.34% higher to 0.9360 (0.9240).

Risk currencies fell with the Australian Dollar (AUD/USD) tumbling 1.13% lower to 0.6730 (0.6800). The Kiwi (NZD/USD) lost 1.23% to finish at 0.6248 from 0.6320 yesterday. The US Dollar advanced vs most Asian/EMFX pairs. The USD/SGD pair rallied to 1.3443 (1.3410). USD/CNH eased to 6.92 (6.93).

Wall Street stocks settled lower after a strong start. The DOW slid 0.68% to 32,925 (33,187 yesterday) while the S&P 500 dipped to 3,805 from 3,843. The NASDAQ eased to 10,856 (10,936).

Data released yesterday and earlier in the week saw US Construction Spending climb to 0.2% from a previous -0.2%, beating estimates at -0.4%. Germany’s December Annual Inflation Rate slid to 8.6% from a previous 10.0%, lower than expectations at 9.1%.

Canada’s December Global S&P Manufacturing PMI eased to 49.2 from 49.6, but higher than estimates at 49.0. US Construction Spending rose to 0.2% from -0.2%, up from forecasts at -0.4%.

• EUR/USD – After closing 2022 on a strong note, climbing in late December, the shared currency slid weighed by broad-based US Dollar strength and softer German inflation.  Overnight, the Euro plummeted to 1.0519 from 1.0670 settling at 1.0560, down 1.10%.

• AUD/USD – The Aussie Dollar led risk FX lower against the Greenback, as risk appetite slumped amidst higher global bond yields. Overnight, the Australian Dollar traded to a low at 0.6688 before rallying to settle at 0.6730 in late New York. Yesterday, the AUD/USD pair was at 0.6800.

• USD/JPY - Against the trend, the Japanese Yen gained modestly versus the Greenback to 130.75 from 131.10. Lower bond yields and safe-haven flows bolstered the Japanese currency against the Greenback. Overnight low for the USD/JPY pair was at 129.50.

• GBP/USD – The British Pound settled lower against the US Dollar, to 1.1975 from yesterday’s open at 1.2057. Overnight, Sterling was hammered to a low at 1.1900 before rallying in late New York. In choppy trade, the overnight high recorded was at 1.2085.

On the lookout

The first full week of 2023 is huge with a busy economic data calendar that includes the release of the FOMC Meeting Minutes (5 January, Thursday at 6 am Sydney time).

Today’s calendar kicks off with Japan’s Jibun Bank December Manufacturing PMI (f/c 48.8 from 49.0 – ACY Finlogix).

Germany starts off European data with its November Import Prices (y/y f/c 18% from 23.5% - ACY Finlogix).

Switzerland follows with its December Inflation Rate (m/m f/c -0.2% from 0%; y/y f/c 2.9% from 3% - ACY Finlogix).

France releases its December Inflation Rate (y/y f/c 6.4% from 6.2% - ACY Finlogix), French Global Services PMI (f/c 48.1 from 49.3 – ACY Finlogix).

Germany follows with its S&P Global Services Final PMI for December (f/c 49 from 46.1 – ACY Finlogix).

The UK releases its November Mortgage Approvals (f/c 55.947K from 58.977K – ACY Finlogix).

Canada starts off North America with its Canadian November PPI report (no f/c given).

The US rounds up today’s data releases with its December ISM Manufacturing PMI (f/c 48.5 from 49.0 – ACY Finlogix), US November JOLTS Job Openings (f/c 10 million from 10.334 million – ACY Finlogix).

The US Federal Reserve FOMC releases its latest meeting minutes.

Trading perspective

The Dollar has come back strongly in 2023 after falling in late December mostly on position adjustments.

The exception is the Japanese Yen which finished little changed against the Greenback.

The week ahead in terms of economic data is huge and should set the tone for the next big FX move.

Friday sees the release of the US Employment report with Wages and Jobs Creation expected to moderate further.

Which could lead to a softer Dollar heading into the data.

For today though, expect the Greenback to maintain its strength versus most Rivals.

The abrupt drop in US bond yields though, if extended will weigh on the Greenback. Either way, expect further choppy trading to highlight this week.

• EUR/USD – The shared currency found itself on the back foot overnight after a short-covering rally pushed the Euro just above the 1.07 level earlier this week. The Euro plunged 1.1% to finish at 1.0560 from 1.0670 yesterday. Overnight low traded was at 1.0519 in volatile trade, while the high recorded was at 1.0680. Look for further choppy trade in the Euro with a likely range today of 1.0500-1.0650. Preference is to sell Euro rallies.

• AUD/USD – The Aussie Battler plummeted lower against the US Dollar weighed by risk-off amidst global recession fears. The rise in COVID-19 cases in China also pressurised the Australian currency. The Aussie closed at 0.6730 in New York (0.6800 yesterday). Immediate support today lies at 0.6700 followed by 0.6685. On the topside look for immediate resistance at 0.6780, 0.6810 and 0.6840 to cap. Look for another volatile trading session in the Aussie today, likely range between 0.6700-0.6800. Trade the range.

(Source: Finlogix.com)

• USD/JPY – Against the Yen, the Greenback settled modestly lower at 130.75 from 131.10 yesterday. Overnight low traded was at 129.50 in volatile fashion. The overnight high recoded was at 131.20. Look for another roller coaster ride in this currency pair, with a likely trading range today of 129.70-131.20. Prefer to sell USD/JPY rallies on risk-off.

• GBP/USD – Sterling settled lower against the Greenback, finishing at 1.1975 (1.2057 yesterday). Overnight, the GBP/USD pair was hammered to a recorded low at 1.1900 before rallying at the close. In choppy trade, the overnight high recoded was at 1.2085. With US interest rates expected to rise and keep the advantage to the Greenback, expect the British Pound to trade heavy. Immediate support today lies at 1.1945, 1.1905 and 1.1875. Immediate resistance is found at 1.2015, 1.2055 and 1.2085. Look for further volatility in a likely range today of 1.1910-1.2050. Look to sell on Sterling strength.

Have a good trading week ahead all, happy Wednesday.