Forex Today: Dollar tumbles on Fed's pivot despite US economy still outperforming


In the last full week of 2023, volume will likely start to fade ahead of the holidays. However, the economic calendar shows many relevant events. Regarding central banks, the focus will be on comments from policymakers after a series of monetary policy meetings, including those of the Fed, the ECB, and the BOE. Next week, the Bank of Japan will have its meeting. The most important report form the US will be the core PCE.

Here is what you need to know for next week: 

The US Dollar Index (DXY) resumed the downward trend and posted the lowest weekly close since July after the Federal Reserve's December meeting. The forecast of rate cuts by some FOMC members weighed on the US Dollar and boosted US yields. The Fed's "pivot" fueled a rally on Wall Street, leading to a record close in the Dow Jones.

The decision of other central banks, such as the European Central Bank (ECB) and the Bank of England (BoE), also contributed to the weakness of the US Dollar, as they kept rates unchanged but did not signal a pivotal shift and maintained a hawkish tone. However, this divergence in monetary policy may be temporary, as the strong US economic conditions continue to outperform. 
Market participants see the Fed cutting rates next year but after other central banks. 

Next week, US housing data will be released, including Building Permits and Housing Starts on Tuesday, Existing Home Sales on Wednesday, and New Home Sales on Friday. On Thursday, a new estimate of Q3 GDP is due, along with the weekly Jobless Claims and the Philly Fed Manufacturing Index. The critical report of the week will be released on Friday with the Core Personal Consumption Expenditure Price Index.

EUR/USD rebounded from the 20-week Simple Moving Average (SMA), which is a positive sign. However, the Euro struggled to stay above 1.1000, similar to two weeks ago. On Monday, the German IFO Business Climate Index is expected to show a modest improvement. Eurozone will release the final reading of the Harmonized Index of Consumer Prices for November. Germany will also release the Producer Price Index on Wednesday.

Analysts at Commerzbank on Eurozone economy:

The PMI for the services sector, the most reliable economic barometer for the euro area, fell again in December by 0.6 points to 48.1. This confirms our expectation that the euro area economy will continue to contract in Q4, contrary to the ECB's expectations. At 44.2, the corresponding manufacturing index also offers little hope of a turnaround. Today's data is therefore likely to fuel speculation about an imminent ECB rate cut. However, with underlying price pressures still strong, the ECB is unlikely to start cutting rates before the summer.


The Japanese Yen was among the best performers. USD/JPY has fallen 1000 pips during the last five weeks, approaching 140.00. The Bank of Japan will have its monetary policy meeting and announce its decision on Tuesday. No change is expected, but the anticipation surrounding the next steps in policy and speculation about the potential beginning of the end of ultra-loose monetary policy has been supporting the Japanese Yen. Additionally, the National Consumer Price Index is due on Friday.

GBP/USD initially traded near 1.2800 but later pulled back below 1.2700. However, it experienced an overall rise during the week and maintained a bullish tone. Important inflation data from the UK is scheduled for release on Wednesday, which could have a significant impact on the Pound, especially after the recent Bank of England meeting where policymakers maintained a hawkish stance, providing support to the currency. The Consumer Price Index (CPI) is expected to show a 4.4% increase compared to the previous year in November, slightly lower than the 4.6% recorded in October. Furthermore, public borrowing figures are due on Thursday. On Friday, the UK will report Q3 growth data and November Retail Sales.

NZD/USD posted the highest weekly close in months and tested levels above the 100-week Simple Moving Average (SMA). The short-term sentiment for the New Zealand Dollar remains bullish. On Tuesday, New Zealand will release trade data, and the NZ Business Confidence survey is also due.

AUD/USD rose above 0.6700 to its highest level since July, benefiting from a weaker US Dollar across the board and increased risk appetite. On Tuesday, the Reserve Bank of Australia (RBA) will release the minutes of its latest meeting.

USD/CAD suffered the worst week in months, falling below 1.3700 to its lowest level since August. Inflation data, which is due on Tuesday, will be a key report in Canada. The Consumer Price Index (CPI) is forecasted to show a decrease of 0.2% in November, with the annual rate declining from 3.1% in October to 2.9% in November. The Bank of Canada (BoC) will release the summary of deliberations on Wednesday. On Friday, the monthly GDP report will be released, with October figures expected to show a 0.2% expansion.

 


Like this article? Help us with some feedback by answering this survey:

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

AUD/USD holds steady near 0.6250 ahead of RBA Minutes

AUD/USD holds steady near 0.6250 ahead of RBA Minutes

The AUD/USD pair trades on a flat note around 0.6250 during the early Asian session on Monday. Traders brace for the Reserve Bank of Australia Minutes released on Monday for some insight into the interest rate outlook. 

AUD/USD News
USD/JPY consolidates around 156.50 area; bullish bias remains

USD/JPY consolidates around 156.50 area; bullish bias remains

USD/JPY holds steady around the mid-156.00s at the start of a new week and for now, seems to have stalled a modest pullback from the 158.00 neighborhood, or over a five-month top touched on Friday. Doubts over when the BoJ could hike rates again and a positive risk tone undermine the safe-haven JPY. 

USD/JPY News
Gold price bulls seem non-committed around $2,620 amid mixed cues

Gold price bulls seem non-committed around $2,620 amid mixed cues

Gold price struggles to capitalize on last week's goodish bounce from a one-month low and oscillates in a range during the Asian session on Monday. Geopolitical risks and trade war fears support the safe-haven XAU/USD. Meanwhile, the Fed's hawkish shift acts as a tailwind for the elevated US bond yields and a bullish USD, capping the non-yielding yellow metal.

Gold News
Week ahead: No festive cheer for the markets after hawkish Fed

Week ahead: No festive cheer for the markets after hawkish Fed

US and Japanese data in focus as markets wind down for Christmas. Gold and stocks bruised by Fed, but can the US dollar extend its gains? Risk of volatility amid thin trading and Treasury auctions.

Read more
Bank of England stays on hold, but a dovish front is building

Bank of England stays on hold, but a dovish front is building

Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.

Read more
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

Forex MAJORS

Cryptocurrencies

Signatures