December 2021 Market Wrap

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The Dollar retreated from November’s high as seasonal tendencies kick in. The currency tends to underperform in December as companies move money offshore before the end of the year for tax purposes. This year, demand for dollar is expected to persist with a hawkish Fed which has planned for three interest rates hikes in 2022. This contradicts against the Euro and Yen in particularly, as both the ECB and BOJ committed to maintaining current interest rates levels and to keep its financial conditions loose.

Sterling strengthened in December as the BoE hiked interest rates for the first time since the onset of the pandemic, increasing its main interest rate to 0.25% from its historic low of 0.1% to curb rising inflationary pressures as U.K. inflation hit a 10-year high in November.

Commodity currencies strengthened in December spurred by the risk-on market sentiment. RBA kept its cash rate unchanged at a record low of 0.1%, and reiterated that they are not likely to raise rates until inflation is sustainably within the 2% to 3% range. The Loonie also benefited from rising oil prices amid a global energy crunch, with fuel demand rising back to near pre-pandemic levels and low inventories following deep production cuts by the OPEC+ for almost a year. Elsewhere, gold edged higher in December on the back of a weaker greenback and its position as an inflation hedge.

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