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Major currencies trade sideways ahead of potentially volatile week for FX market

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9 December 2022

Written by
Matthew Ryan

Matthew Ryan is Ebury’s Global Head of Market Strategy, based in London, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

Most of the major currencies have traded sideways so far this week, amid a dearth of market moving news and acute uncertainty heading into a hectic week of central bank announcements.

T
he past few trading sessions have largely been void of any significant developments, giving investors opportunity to take a breather ahead of a potentially very volatile period. The US dollar was a touch stronger against its major peers at the start of the week, although it has since given up some of this ground as markets hesitantly brace for the possibility of a dovish pivot from the Federal Reserve at its upcoming policy meeting on Wednesday. Following four consecutive 75bp rate hikes, the FOMC is almost certain to revert back to a 50bp hike next week. The real questions does, however, surround the pace and extent of tightening in 2023. Should the bank’s ‘dot plot’ signal a terminal rate of 5% or higher, while Fed members push back against expectations for rate cuts, then the dollar could be in for some near-term strength.

The performance of the both the euro and the pound in the coming days will, however, depend heavily on the communications from both the European Central Bank and Bank of England respectively. The ECB and BoE are both set to announce their latest policy decisions on Thursday, less than 24 hours after the Fed. Both central banks are expected to raise rates by 50 basis points, although policymakers will need to strike a delicate balance between bringing down rates of inflation and not overly damaging the economic outlook. This makes the tone of communications very difficult to call. We will be putting out preview reports for all three central bank meetings, so make sure to look out for these early-next week.

Elsewhere in financial markets, Brent crude oil prices have fallen below $80 a barrel for the first time since Russia’s invasion of Ukraine. Heightened fears over an easing in demand for oil in 2023 have largely contributed to the move, which is providing a little bit of a drag on commodity-dependent currencies. The Norwegian krone and Canadian dollar have been the two worst performers in the G10 in the past week, with sentiment for the latter further worsened by the Bank of Canada’s dovish communications following its policy meeting on Wednesday. You can hear our thoughts on the meeting, and whether we see CAD as a buy, sell or hold opportunity in our latest episode of our podcast – FX talk. 

No more than second-tier economic data releases out of the major economic areas today ensures that we are likely to see a rather subdued end to the week in the currency market.

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