USD extends rebound post Fed

KBC Market Research Desk KBC Bank

The impact of the US midterm elections faded further on Thursday. The forecasts of the EC accentuated the difference in view between the EU and Italy on next year's Italian growth and on the country's budgetary performance. It was a marginal negative for the euro. In US trading, the dollar captured a better bid going into the Fed decision. The FOMC left the policy rate unchanged. The statement was little changed. Further gradual rate increases are likely. The USD-rally accelerated after the Fed decision. EUR/USD closed the day at 1.1363. USD/JPY finished at 114.07. The rise in US yields and the dollar also weighed on US equities. This morning, Asian equities are also trading in the defensive in the wake of yesterday's Fed decision. Chinese equities continue to underperform. Most regional currencies are losing ground, but the decline remains orderly. USD/CNY trades near 6.9450. The dollar is well bid across the board. EUR/USD trades in the 1.1345 area. USD/JPY is trading just below 114. Today, there are few data in Europe. In the US, producer prices and U of Michigan Consumer confidence will be published. PPI is expected at a modest 0.2% M/M and 2.5% Y/Y. Michigan confidence is expected to hold slightly below the cycle peak. We don't see much reason for a negative surpise. The question is whether the ‘formal' confirmation of further Fed rate hikes will be enough to push US (10-y) yield and the dollar beyond next resistance. The jury is still out. However, with the US 2-y yield nearing 3.0%, the dollar looks quite well protected. Earlier, this week, uncertainty on the US election weighted on the dollar. EUR/USD rebounded 1.13 area to the 1.15 area, but the dollar correction had no strong legs. EUR/USD is again heading for the bottom of the 1.1621/1.13 trading range. A sustained break is not evident, but USD momentum remains constructive. Lingering tensions on Italy remain a euro negative short-term. USD/JPY is also nearing the 114.54 top. A break might be less easy if sentiment on risk remains soft.

Sterling profited this week from headlines that a Brexit deal might be close, even a the issue of the Irish boarder remains a high hurdle. There are also plenty of UK data today including the Q3 GDP. Day-to-day sterling momentum remains positive. EUR/GBP nears/tests the (0.8723/0.8681/0.8621)-support. We have the impression that sterling already discounts quite some good news. Further sterling gains might be become more difficult, unless PM May can prove that her cabinet will approve a deal.

Download The Full Sunrise Market Commentary Currencies

Author

KBC Market Research Desk

KBC Bank

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.