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EUR/USD exchange rate. The results of the first week of the year: the dollar tried to assert itself, but failed

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EUR/USD exchange rate

The EUR/USD chart looks like a grand piano, where white keys are replaced by black ones. During the first week of 2023 the initiative changed hands: bearish ones, and vice versa replaced bullish daily candlesticks. Formally the round ended in favor of the sellers: last Monday trading started at 1.0704, and on Friday it closed at 1.0645. 

The past week was marked with an important moment: the dollar asserted itself again. Not as well as the dollar bulls would like it to, but it was very revealing. Take a look at the weekly chart of the eur/usd: almost every candlestick in W1 is bullish since the end of October. The pair systematically moved upward with heavy pullbacks, but overcame the path from the parity point to the seventh figure. 

EUR/USD exchange rate — what shapes the trend of the exchange rate? 

The first week of 2023 reflected the inability of buyers to break above 1.0700. The sellers made an attempt to break above the 4-th figure. And though this attempt ended in failure, the alarm bells for the bulls eur/usd sounded. Traders did not decide on the price movement vector and it is too early to write off the greenback. Several fundamental factors played in favor of the strengthening of the American currency.

The minutes of the December meeting of the Federal Reserve System were published last Wednesday, which rhetoric was hawkish. The essence of the document is that the regulator does not intend to turn around a hawkish course this year: rates will remain at a high level and will not be lowered until 2024. 

It will be important for the Fed to keep rates high after it stops raising them. True, it did not answer another question — whether the central bank intended to revise the final rate forecast downward. The minutes did not answer that question either, so the release had limited impact on the pair.

What does the fate of the EUR/USD chart depend on? 

The fate of the EUR/USD pair largely depends on the rhetoric of representatives of the Fed and the European Central Bank (for example, Jerome Powell is expected to speak on Tuesday, January 10). Also next week will be the release of the U.S. inflation growth data. This release will complete the puzzle and either strengthen or weaken the U.S. currency.

The first week of January showed that it is too early to write off the dollar. The greenback is ready to show its character by reacting to the current information flow. At the same time, eur/usd traders are not ready to bet on the U.S. currency, yet — the successes of the dollar bulls are situational and temporary. Market participants need a strong information trigger — inflation report (Thursday, January 12) and/or speech of the head of FRS (Tuesday, January 10).

Earlier we reported that the USD is getting cheaper against most of the major currencies.

Forex

Asia FX weakens as dollar recovers amid waning rate cut cheer

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Investing.com– Most Asian currencies retreated on Friday as the dollar recovered a measure of recent losses after a string of Federal Reserve officials warned that bets on interest rate cuts may be premature. 

While the greenback was still headed for some weekly losses, it was trading well above a one-month low hit on Thursday. U.S. Treasury yields also rebounded, pressuring risk-driven markets.

Regional factors also weighed on Asian currencies, as economic data from China and Japan underwhelmed.

Chinese yuan weak amid mixed economic prints 

The Chinese yuan’s pair rose 0.1%, moving back to six-month highs above 7.22.

Economic readings from the country continued to offer middling signals on an economic recovery. Data on Friday showed grew more than expected in April.

But other readings showed growth in slowed sharply, while a decline in Chinese accelerated last month. 

Chinese also grew less than expected in April, while fell from a seven-month high, but still remained relatively high. 

The readings presented a mixed outlook for Asia’s biggest economy. They also came after the U.S. imposed higher tariffs on key Chinese industries, sparking fears of a reignited trade war between Beijing and Washington. 

Concerns over China weighed on other currencies with trade exposure to the country. The Australian dollar’s pair fell 0.2%, while the South Korean won’s pair rose 0.7%. 

The Singapore dollar’s pair rose 0.1% after the island state’s grew at a slower-than-expected pace in April, and also contracted sharply from last year. 

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Weakness in the Japanese yen deepened after weaker-than-expected gross domestic product data for the first quarter. The pair rose 0.3% and was close to breaking above 156, extending sharp overnight gains.

Dollar recoups most weekly losses as Fed downplays rate cuts 

The and rose 0.2% each in Asian trade, extending an overnight rebound from one-month lows.

The dollar’s recovery came as several Fed officials, specifically members of the bank’s rate-setting committee, said that they needed much more confidence that inflation was coming down, beyond some easing inflation in April.

This saw traders scale back bets on a September rate cut, albeit slightly, according to the . 

Still, the dollar was set to lose about 0.7% this week, following some softer-than-expected data for April. The reading, coupled with soft data pushed up hopes that inflation will cool in the coming months.

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Dollar steadies, but on track for sharp weekly loss

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Investing.com – The U.S. dollar edged higher in European trade Friday, but was on track for a hefty weekly fall after cooling inflation and weak retail sales brought Federal Reserve rate cuts back into focus. 

At 04:10 ET (08:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher at 104.580, marginally above a five-week low just below 104 seen earlier this week.

Dollar steadies after hawkish Fed speak

The dollar has recovered to a degree as several Fed officials, specifically members of the bank’s rate-setting committee, said that they needed much more confidence that inflation was coming down, beyond some easing inflation in April.

“I now believe that it will take longer to reach our 2% goal than I previously thought,” St. Louis Federal Reserve president Loretta Mester said on Thursday, adding that further monitoring of incoming data will be needed. 

Federal Reserve Bank of New York President John Williams agreed with this view. 

“I don’t see any indicators now telling me … there’s a reason to change the stance of monetary policy now, and I don’t expect that, I don’t expect to get that greater confidence that we need to see on inflation progress towards a 2% goal in the very near term,” Williams said.

However, the dollar is still on course for a weekly loss of around 0.7% after the milder than expected U.S. data raised expectations the will deliver two interest rate cuts this year, probably starting in September.

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U.S. were also flat in April and softer-than-expected, and manufacturing output unexpectedly fell.

“Our view for the near term remains that we could see a further stabilisation in USD crosses as markets await the next key data input: April core PCE on 31 May,” said analysts at ING, in a note.

Euro slips ahead of CPI release

In Europe, traded 0.1% lower to 1.0860, having traded as high as 1.0895 in the wake of U.S. inflation release, but the single currency is still up around 0.9% on the dollar this week.

The final reading of the is due later in the session, and is expected to show inflation rose by 2.4% on an annual basis in April.

The is widely expected to cut interest rates in June, but traders remain unsure of how many more cuts, if any, the central bank will agree to over the course of the rest of the year.

Traders have priced in 70 basis points of ECB cuts this year – a lot more than the just under 50 bps of easing priced in for the Fed.

fell 0.1% to 1.2658, but is still on track for gains of around 1% this week.

The Bank of England is also expected to cut rates from a 16-year high this summer, but volatility is likely to be limited ahead of the release of key U.K. inflation figures next week.

Yen slips after weak Japanese GDP data

In Asia, rose 0.3% to 155.87, close to breaking above 156, after weaker-than-expected Japanese data for the first quarter. 

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traded 0.1% higher at 7.2209, moving back to six-month highs above 7.22 after data earlier Friday showed grew more than expected in April, but growth in slowed sharply, while a decline in Chinese house prices accelerated last month.

 

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ING anticipates EUR/GBP rise as BoE rate cut bets increase

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Broker ING noted the potential downside risks for the British pound, noting the currency’s recent decline from its peak against the euro. The GBP’s sensitivity to the performance of US equities was highlighted as a contributing factor to its movement.

The firm also observed a decrease in volatility for the pair as the market anticipates the release of key Consumer Price Index (CPI) figures in the UK scheduled for next week.

ING’s UK economist suggests that there may be a dovish tilt in expectations for the Bank of England’s (BoE) monetary policy. The firm maintains a favorable outlook on the possibility of the EUR/GBP pair rising, as market participants might increase their wagers on a potential interest rate cut by the BoE in June.

The British financial markets were focused on a speech delivered by Catherine Mann of the BoE, who is regarded as the most hawkish member of the Monetary Policy Committee (MPC).

This event followed comments made by Megan Greene, who recently shared a cautiously optimistic perspective on inflation, mirroring sentiments expressed by BoE Governor Andrew Bailey at the last meeting.

ING’s commentary comes as investors and analysts closely watch the central bank’s moves, which could significantly influence currency valuations. The anticipation of UK CPI data and the BoE’s potential response are key factors in the firm’s analysis of the GBP’s trajectory.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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