Dollar recovers slightly from 7-month lows.

Narrow ranges prevailed on Monday with the US market holiday dampening activity.

China reported that GDP was unchanged in the fourth quarter of 2022 with year-on-year growth of 2.9% from 3.9% previously and above consensus forecasts of 1.6%. Industrial production increased 1.3% over the year compared with expectations of 0.2% and the retail sales decline was held to 1.8% after a 5.9% decline previously and substantially stronger than expectations of a 9.5% slide.

The National Bureau of Statistics stated that it expects the economy to improve this year.

The Chinese data helped underpin confidence in the global outlook, although there was also scepticism that the data was accurate and equities overall were mixed.

The dollar has held just above 7-month lows over the past 24 hours with narrow ranges prevailing ahead of the Bank of Japan policy decision and USD/JPY edging higher.

The Bank of Japan will announce its latest policy decision on Wednesday Asian time. There has been increased speculation that the central bank will make further adjustments to the yield curve control programme and potentially let yields move higher. There will be high volatility following the policy decision.

The Bank of Canada business outlook survey reported a slowdown in expected sales growth. Most companies expect a recession in the next year while there was a slight easing of upward pressure on wages and inflation pressures also eased slightly. The latest CPI inflation data is due on Tuesday.

Bank of England Governor Bailey stated that the market risk premium from September’s Truss budget has disappeared for the time being at least and that the emergency bond-buying programme has been wound up with a net profit which will benefit the Treasury.

As far as the economy is concerned, Bailey expects that inflation will fall, but stated that the labour shortage is a major risk to the central case for inflation falling.

UK labour-market data recorded an unchanged unemployment rate of 3.7% and a further increase in monthly employment.  Headline and underlying earnings increased 6.4% in the three months to November and above expectations of 6.2% which will maintain speculation that underlying inflation will increase.

The UK will release the latest inflation data at the European open with expectations that the headline rate will decline to 10.5% from 10.7%. The core rate is forecast to retreat to 6.2% from 6.3%.

ECB council member Rehn stated that interest rates will rise further at the next few meetings, but provided no further guidance. EUR/USD found support close to 1.0800 and was little changed around 1.0825 on Tuesday.

The yen dipped sharply after Monday’s European open, but resisted sustained selling. USD/JPY settled above 128.50 on Monday and edged higher on Tuesday, but failed to hold above 129.00 to trade around 128.85.

Swiss sight deposits edged higher in the latest week which could indicate that the National Bank considers liquidity has tightened enough. The franc was little changed overall and held steady. EUR/CHF edged lower to 1.0020 with USD/CHF gains to 0.9260.

Sterling recovered from initial losses while BoE Governor Bailey’s comments had little overall impact. The UK wages data also stemmed Sterling losses on Tuesday.

The Australian dollar drifted lower on Monday with AUD/USD retreating towards 0.6950. AUD/USD edged higher to 0.6955 on Tuesday with only slight support from the Chinese data. USD/CAD was unable to hold above 1.3400, but settled close to this level.

Economic Calendar

13:30CAD CPI m/m-0.6%0.1%
13:30USD Empire State Manufacturing Index-8.7-11.2

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.