EUR/USD Begins 2022 on a Quiet Tone Despite Bullish Dollar
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EUR/USD Begins 2022 on a Quiet Tone Despite Bullish Dollar

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Azeez Mustapha

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The opening week of 2022 came with some surprises for the forex market but made little dent on the euro/dollar pair. The most notable shocker came after the US Federal Reserve, according to the released Minutes from its December meeting, noted that it plans to taper its bond holdings over the coming months.

The US Fed’s balance sheet currently comprises roughly $8.3 trillion in Treasuries and mortgage-backed securities. The minutes read that: “Almost all participants agreed that it would likely be appropriate to initiate balance sheet runoff at some point after the first increase in the target range for the federal funds rate.”

The apex bank also believed that the conditions for a rate hike are ripe and it could act accordingly in the coming months if the pace of recovery in the labor market maintained its current trajectory. However, the market received the release of a worse-than-expected Nonfarm Payroll for December 2021. The data showed that the US economy minted 199,000 new jobs in December, half of what analysts expected.

On the other hand, the Unemployment Rate came out better-than-expected, contracting to 3.9% from 4.2% in the previous month. While many did not perceive this data as special or worthy of note, the Fed considered it good enough.

Dollar Posts Healthy Recovery Amid Positive US Economic Docket

Meanwhile, the December minutes indicated that policymakers were more concerned about the nation’s inflation rate than they were letting off with their reaction to the government bond yields. That said, the report caused some serious damage for Wall Street as the dollar (Greenback) recovered significantly from its previous losses. The NFP data also exerted bearish pressure on the equities front, further boosting the dollar.

In other news, Eurozone inflation maintained an upward trajectory as it increased by 5% YoY in December, its highest level on record since it recorded 4.9% in the previous months.

 

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