The U.S. dollar exchange rate in December overall has improved but failed to rise above the year's high of 96.93. The foreign exchange market was mainly affected by two factors. One is the raging new variant virus Omicron, and the other is the monetary policy meeting of major central banks led by the US Federal Reserve. The latest inflation situation in the United States continues to rise and hit a 10-year new high. Fed announced that the interest rate remains unchanged, but it will double the reduction in debt purchases to 30 billion U.S. dollars per month, and push the end time to the first quarter in 2022. The dot plot forecasts that there will be three interest rate hikes this year and three more interest rate hikes in 2023. Although Powell said the interest rate hikes in 2022 may not be inevitable, many officials have hinted that they need to act in advance to stimulate the dollar index to do a good job, but they are temporarily blocked before the 97 mark and profit-taking at a high level. The below key support is at 95.50/80. Considering that the normalization of the US monetary policy is still ahead of other major developed countries, it should be worthwhile to continue to be optimistic in the short term. However, it is only suitable to buy low, and there may be considerable resistance above 97. 

Inflation in the United Kingdom is also serious due to the recent outbreak of a new variant virus and there's a rapid increase of confirmed cases. After the December meeting of the Bank of England, the interest rates unexpectedly raised by 15 basis points to 0.25% but maintained the scale of asset purchases. The central bank stated that it may maintain a "gentle tightening" of monetary policy. The pound exchange rate has been dragged down by the epidemic and the follow-up issues of Brexit. There are also scandals of Prime Minister Boris Johnson pop up. Although there is support near 1.32 and rebounded to 1.34 recently, we should still need to pay attention to the resistance of the 50MA at 1.3450. The European Central Bank maintains its monetary policy unchanged when discussing interest rates, it means that it will slow down the emergency bond-purchase plan for the first quarter of 2022. The central bank expects that it is unlikely to raise interest rates this year. Believed that the euro will remain weak until it reaches 1.14. 

It should be noted that the latest variant of the virus, Omicron, has a fast infection rate, but has a low rate of severe illness. Pharmaceutical companies have made good progress in developing targeted drugs. If the epidemic does not worsen, it may help non-US currencies rebound. Therefore, the advantage of the US dollar is not all on one side, you should only absorb at a low position. If you fall below 95.50, you must stop the loss first.

Patrick Law General Manager of Hantec Group