Wednesday's strong US CPI supported the Fed’s slower rate cuts, but Fed Chair Powell's unimpressive testimony 2.0 and a rising US budget deficit weighed on the dollar. Additionally, concerns over Trump’s peace push in Ukraine, US tensions with Iran, and tariff uncertainties also challenged the dollar. That said, markets are now waiting for the US PPI for more clues on the Fed’s next move.
In Europe and Japan, dovish comments from central bank officials weakened the Euro and Yen before the fresh run-up, while the British Pound struggled amid mixed domestic data. The Aussie and Kiwi dollars rebounded, and the Canadian dollar hit a two-month high. Crude oil fell after recent gains, while gold continued its upward trend.
Cryptocurrencies surged on Wednesday, supported by Powell’s neutral stance and Trump’s peace efforts, but Bitcoin and Ethereum saw a pullback early Thursday as markets awaited the US PPI report.
US data caused a brief pullback in EURUSD, especially after dovish ECB comments. However, the Euro regained momentum early Thursday, hitting a weekly high amid growing hopes for peace in Ukraine and a resolution to the US tariffs.
GBPUSD ended lower yesterday but began rising again today. That said, the Cable pair’s previous fall could be linked to weak UK housing data, fears of economic slowdown and expectations of further rate cuts from the Bank of England (BoE). However, hopes of easing trade and geopolitical tensions, as well as surprisingly positive UK Q4 2024 GDP, helps the Pound Sterling to remain firmer of late.
USDJPY reversed from a one-week high, posting its first loss in five days, even on BoJ Governor Ueda's less hawkish stance as Japan’s inflation concerns, backed by the latest Japan CGPI data, weigh on the pair.
AUDUSD and NZDUSD rebound, recovering from previous losses, while USDCAD drops back toward its two-month low, after bouncing post-US CPI data. Commodity-linked currencies benefit from easing geopolitical tensions, positive inflation expectations from Australia and New Zealand, and mixed data from Canada. Despite falling Crude Oil prices and concerns over a potential US tariff impact on Canada’s economy, USDCAD’s decline continues.
Crude oil prices dropped due to hopes of increased Russian oil exports from a possible Russia-Ukraine peace deal and a higher-than-expected US inventory build. This overshadowed OPEC+’s unchanged oil demand forecasts for this year and next.
Gold prices rebounded as the US Dollar struggled to maintain its post-CPI gains. The rise was also supported by speculation over stronger demand from China and the possibility of avoiding harsh US tariffs, despite Trump’s threats.
On Wednesday, Bitcoin (BTCUSD) and Ethereum (ETHUSD) saw their biggest daily gains in a week after Fed Chair Powell eased rate cut fears, supported stablecoin regulation, and opposed anti-crypto efforts. Additionally, President Trump’s push for peace talks between Russia and Ukraine helped boost crypto prices. However, both BTCUSD and ETHUSD pulled back today as the market consolidates ahead of the key US PPI report. It’s worth noting that the Trump-inspire industry optimism wanes of late and joined the US Dollar’s corrective move to pare weekly moves.
After a volatile start driven by a risk-on mood, a softer US Dollar, and UK Q4 GDP, traders will focus on Swiss CPI and US PPI data for January. However, attention will mainly be on US tariff headlines, the Russia-Ukraine peace plan, and US-Iran tensions. A stronger US PPI could reinforce hawkish Fed expectations, boosting the US Dollar. Risk news, however, may limit Greenback strength. EURUSD, GBPUSD, and other commodity currencies may see weekly gains trimmed, while USDJPY could face pressure. Crude oil needs a strong catalyst to reverse its losses, while gold may hold its ground, and cryptocurrencies could trade within their recent range, despite some pullback.
May the trading luck be with you!
