Forex daily: USD sees some short-term upside against GBP and EUR, but analysts split over Fed direction

Forex daily: USD sees some short-term upside against GBP and EUR, but analysts split over Fed direction

Proactive Investors - Most of the attention is in the equities market today, at least for US investors encouraged by Thursday's surprisingly strong 2.9% gross domestic product growth for the final quarter of 2022, beating forecasts by 0.3 percentage points.

Healthcare services, housing and utilities, and personal care services led the growth, while spending on automobiles and parts proved a tailwind.

Core personal consumption expenditures (a measure of the spending on goods and services) fell from 4.3% to 3.2% in the last quarter, which according to analysts “will probably offer more evidence supporting a slower pace of Fed hikes”.

The analysts added that “the core inflation gauge probably slid to 4.4% last month, and falling energy prices and discounts to clear excess inventory may stay disinflationary through the first half”.

Yet, as ING pointed out, “the Federal Open Market Committee appears to have more room to surprise on the hawkish side compared to the European Central Bank”, and the forex markets seem to be in agreement - as does the bond market, given the overnight yield hike on 10-year treasury bonds.

While GBP/USD closed slightly higher yesterday, the pair dipped 40 pips to 1.237 in this morning’s Asia trading window.

Cable pulls back from mid-December highs – Source: capital.com

EUR/USD closed 0.25% lower and shed another 0.17% to 1.087 this morning, while the greenback also saw gains against the Japanese yen and Swiss franc, and the rest of the G10 bucket for that matter.

For some perspective, the US Dollar Index (DXY) is still down 2.7% in the year-to-date, and the trendline certainly points in the same direction, so the prospect of some short-term upside should take this into consideration.

Without any major catalysts on the UK and Eurozone economic calendars, investors should not expect too much action on the EUR/GBP pair. For the moment, the pair is changing hands at 87.86p after closing 0.3% lower on Thursday.

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