EUR (1.117) ▼

▪ After strengthening near the 1.150 level on January 13, the EUR failed to sustain its gains against the USD at the end of January as the USD index (DXY) rose to above the 97.0 level due to a more hawkish Fed statement. The bloc’s currency weakened by 1.8% to 1.117, its weakest level in 20 months.

▪ EUR may continue to trade under pressure and hover near the 1.120 level in February as the European Central Bank is expected to remain dovish in its first monetary policy meeting in 2022. In addition, EU weakening economic recovery due to the Omicron variant and the ongoing Russia-Ukraine tensions may further weigh on the bloc’s currency.

GBP (1.344) ▼

▪ GBP weakened against a resurgent USD in January. The US Fed’s hawkishness drove dollar strength even as the sterling was weighed by political uncertainty in the UK and amid Russia-Ukraine tensions. Nonetheless, cable was aided by an improving COVID-19 situation in the UK, as cases have dropped from recent highs.

▪ GBP may continue to depreciate this month, as UK political uncertainty persists and Prime Minister Boris Johnson faces continued pressure to resign. Furthermore, any worsening of tensions between Ukraine and Russia will likely benefit the safe-haven dollar and weigh on cable. However, the sterling will likely find some support in the near-term, as the Bank of England is widely expected to raise the policy rate again.

AUD (0.705) ▼

▪ AUD depreciated against the USD in January, largely due to more hawkish statements by the US Fed and partly associated with the global risk aversion brought by the Russia-Ukraine tussle.

▪ The direction of AUD in February would depend on domestic unemployment, with a better than expected reading may lift the local note higher against the greenback on the expectation that RBA may embark on earlier than expected rate hikes. However, the upside would likely be capped by the hawkish US Fed.

NZD (0.657) ▼

▪ NZD plunged to the lowest level since September 2020 against the USD in January, mainly due to global risk aversion, underpinned by the Russia-Ukraine crisis, and surging COVID-19 cases. The US Fed hawkish statement and better than expected US economic growth (4Q21: 6.9%; 3Q21: 2.3%) despite Omicron wave also weighed on NZD.

▪ NZD may rebound in February if RBNZ signals a more hawkish tone that could revive market appetite for the kiwi. However, the current surging COVID-19 cases and disappointing labour market conditions may delay the next rate hike that could send kiwi further on downtrend.

Source: Kenanga Research - 3 Feb 2022